G.R. No.
L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1)
Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with
modification the Decision, dated August 25, 1972 of the Court of First
Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T.
Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact
of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated
December 16, 1981, denying defendant-appellant's (Petitioner's) motion for
reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot
No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On
June 7, 1965, appellants (petitioners) Dignos spouses sold the said
parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for
the sum of P28,000.00, payable in two installments, with an
assumption of indebtedness with the First Insular Bank of Cebu in
the sum of P12,000.00, which was paid and acknowledged by the
vendors in the deed of sale (Exh. C) executed in favor of plaintiff-
appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in
favor of defendants spouses, Luciano Cabigas and Jovita L. De
Cabigas, who were then U.S. citizens, for the price of P35,000.00.
A deed of absolute sale (Exh. J, also marked Exh. 3) was executed
by the Dignos spouses in favor of the Cabigas spouses, and which
was registered in the Office of the Register of Deeds pursuant to
the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant
the balance of the purchase price of the land, and as plaintiff-
appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the
present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August
25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed
on November 25, 1965 by defendant Isabela L. de Dignos in favor
of defendant Luciano Cabigas, a citizen of the United States of
America, null and void ab initio, and the deed of sale executed by
defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos
not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby
ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00)
to the defendants-spouses upon the execution of the Deed of
absolute Sale of Lot No. 3453, Opon Cadastre and when the
decision of this case becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants
Luciano Cabigas and Jovita L. de Cabigas, through their attorney-
in-fact, Panfilo Jabalde, reasonable amount corresponding to the
expenses or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos
and Isabela Lumungsod de Dignos should return to defendants-
spouses Luciano Cabigas and Jovita L. de Cabigas the sum of
P35,000.00, as equity demands that nobody shall enrich himself at
the expense of another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
 With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss
(petitioners herein) appealed to the Court of Appeals, which appeal was docketed
therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court
except as to the portion ordering Jabil to pay for the expenses incurred by the
Cabigas spouses for the building of a fence upon the land in question. The
disposive portion of said decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the
modification of the judgment as pertains to plaintiff-appellant
above indicated, the judgment appealed from is hereby AFFIRMED
in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants-
appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution
was issued by the Court of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied
the petition for lack of merit. A motion for reconsideration of said resolution was
filed on March 16, 1982. In the resolution dated April 26,1982, respondents were
required to comment thereon, which comment was filed on May 11, 1982 and a
reply thereto was filed on July 26, 1982 in compliance with the resolution of June
16,1 982. On August 9,1982, acting on the motion for reconsideration and on all
subsequent pleadings filed, this Court resolved to reconsider its resolution of
February 10, 1982 and to give due course to the instant petition. On September 6,
1982, respondents filed a rejoinder to reply of petitioners which was noted on the
resolution of September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,
INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C,
HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER
THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A
CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN
MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT,
EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS
THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS
WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION,
EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED
NOR IS IT A NOTARIAL ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE
APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND
ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
V 3. That Atilano G. Jabil is to pay the said spouses the balance of
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING
WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE
MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS
OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two main issues, to
wit:
I. Whether or not subject contract is a deed of absolute sale or a
contract Lot sell.
II. Whether or not there was a valid rescission thereof.
There is no merit in this petition.
It is significant to note that this petition was denied by the Second Division of this
Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion
for reconsideration and on the basis of all subsequent pleadings filed, the petition
was given due course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following
conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand
Pesos P12,000.00) Phil. Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve
Thousand Pesos (P12,000.00) Loan from the First Insular Bank of
Cebu;
Four. Thousand Pesos (P4,000.00) on or before September
15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil
from other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in
favor of Atilano G. Jabil over the above-mentioned property upon
the payment of the balance of Four Thousand Pesos. (Original
Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their contention that the
Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that
the same is subject to two (2) positive suspensive conditions, namely: the
payment of the balance of P4,000.00 on or before September 15,1965 and the
immediate assumption of the mortgage of P12,000.00 with the First Insular Bank
of Cebu. It is further contended that in said contract, title or ownership over the
property was expressly reserved in the vendor, the Dignos spouses until the
suspensive condition of full and punctual payment of the balance of the purchase
price shall have been met. So that there is no actual sale until full payment is
made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell,
petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that
the vendors thereby sell, convey or transfer their ownership to the alleged vendee.
Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of
a formal deed of conveyance is a very strong indication that the parties did not
intend "transfer of ownership and title but only a transfer after full payment"
(Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms
and conditions of the contract, more particularly paragraph four which reads, "that
said spouses has agreed to sell the herein mentioned property to Atilano G.
Jabil ..." and condition number five which reads, "that the spouses agrees to sign a
final deed of absolute sale over the mentioned property upon the payment of the
balance of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court in
analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the contract in
question is a proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price, nor is there a
stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA
305).
A careful examination of the contract shows that there is no such stipulation
reserving the title of the property on the vendors nor does it give them the right to
unilaterally rescind the contract upon non-payment of the balance thereof within a
fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of
the Civil Code, are present, such as: (1) consent or meeting of the minds; (2)
determinate subject matter; and (3) price certain in money or its equivalent. In
addition, Article 1477 of the same Code provides that "The ownership of the thing
sold shall be transferred to the vendee upon actual or constructive delivery
thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12
SCRA 276), this Court held that in the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive
delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold
in the case at bar, as subject Deed of Sale is a private instrument, it is beyond
question that there was actual delivery thereof. As found by the trial court, the
Dignos spouses delivered the possession of the land in question to Jabil as early as
March 27,1965 so that the latter constructed thereon Sally's Beach Resort also
known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on
January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts
were admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on
Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981 found
that the acts of petitioners, contemporaneous with the contract, clearly show that
an absolute deed of sale was intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the Cabigas
spouses, they were no longer owners of the same and the sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas spouses, the contract
of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on
all fours with the case at bar, the contract of sale being absolute in nature is
governed by Article 1592 of the Civil Code. It is undisputed that petitioners never
notified private respondents Jabil by notarial act that they were rescinding the
contract, and neither did they file a suit in court to rescind the sale. The most that
they were able to show is a letter of Cipriano Amistad who, claiming to be an
emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil
because the latter had no money and further advised petitioners to sell the land in
litigation to another party (Record on Appeal, p. 23). As correctly found by the
Court of Appeals, there is no showing that Amistad was properly authorized by
Jabil to make such extra-judicial rescission for the latter who, on the contrary,
vigorously denied having sent Amistad to tell petitioners that he was already
waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is
required that acts and contracts which have for their object the extinguishment of
real rights over immovable property must appear in a public document.
Petitioners laid considerable emphasis on the fact that private respondent Jabil had
no money on the stipulated date of payment on September 15,1965 and was able
to raise the necessary amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence of the
agreement, a slight delay on the part of one party in the performance of his
obligation is not a sufficient ground for the rescission of the agreement" (Taguba
v. Vda. de Leon, supra). Considering that private respondent has only a balance of
P4,000.00 and was delayed in payment only for one month, equity and justice
mandate as in the aforecited case that Jabil be given an additional period within
which to complete payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the
assailed decision of the Court of Appeals is Affirmed in toto.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

 The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the
DELFIN TAN, G.R. No. 153820 Spouses Reynaldo and Norma Taningco were the co-owners of a 689-square meter
Petitioner,
- versus - parcel of land (property) located in Tagaytay City and covered by Transfer

Certificate of Title (TCT) No. 26423. On October 6, 1992, the co-owners executed
ERLINDA C. BENOLIRAO,
ANDREW C. BENOLIRAO, a Deed of Conditional Sale over the property in favor of Tan for the price
ROMANO C. BENOLIRAO,
DION C. BENOLIRAO, of P1,378,000.00. The deed stated:
SPS. REYNALDO TANINGCO
and NORMA D. BENOLIRAO, Promulgated:
a) An initial down-payment of TWO HUNDRED (P200,000.00)
EVELYN T. MONREAL, and
THOUSAND PESOS, Philippine Currency, upon signing of this contract;
ANN KARINA TANINGCO,
then the remaining balance of ONE MILLION ONE HUNDRED SEVENTY
Respondents. October 16, 2009
EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable within a
period of one hundred fifty (150) days from date hereof without
DECISION
interest;
BRION, J.:
b) That for any reason, BUYER fails to pay the remaining balance within
above mentioned period, the BUYER shall have a grace period of sixty
Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (60) days within which to make the payment, provided that there shall
be an interest of 15% per annum on the balance amount due from the
(Rules) on a certificate of title covering real property considered an encumbrance SELLERS;
on the property? We resolve this question in the petition for review
c) That should in case (sic) the BUYER fails to comply with the terms
on certiorari filed by Delfin Tan (Tan) to assail the decision of the Court of
[1]
and conditions within the above stated grace period, then the SELLERS
shall have the right to forfeit the down payment, and to rescind this
Appeals (CA) in CA-G.R. CV No. 52033[2] and the decision of the Regional Trial conditional sale without need of judicial action;
Court (RTC)[3] that commonly declared the forfeiture of his P200,000.00 down
d) That in case, BUYER have complied with the terms and conditions of
payment as proper, pursuant to the terms of his contract with the respondents. this contract, then the SELLERS shall execute and deliver to the BUYER
the appropriate Deed of Absolute Sale;

THE ANTECEDENTS
 Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the
co-owners/vendors Metrobank Check No. 904407 for P200,000.00 as down
payment for the property, for which the vendors issued a corresponding receipt.
On November 6, 1992, Lamberto Benolirao died intestate. Erlinda
Benolirao (his widow and one of the vendors of the property) and her children, as
heirs of the deceased, executed an extrajudicial settlement of Lambertos estate
on January 20, 1993. On the basis of the extrajudicial settlement, a new certificate
of title over the property, TCT No. 27335, was issued on March 26, 1993 in the
names of the Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and
her children. Pursuant to Section 4, Rule 74 of the Rules, the following annotation
was made on TCT No. 27335:
x x x any liability to credirots (sic), excluded heirs and
other persons having right to the property, for a period of two (2)
years, with respect only to the share of Erlinda, Andrew, Romano
and Dion, all surnamed Benolirao
As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to
pay the balance of the purchase price. By agreement of the parties, this period
was extended by two months, so Tan had until May 15, 1993 to pay the
balance. Tan failed to pay and asked for another extension, which the vendors
again granted. Notwithstanding this second extension, Tan still failed to pay the
remaining balance due on May 21, 1993. The vendors thus wrote him a letter
demanding payment of the balance of the purchase price within five (5) days from
notice; otherwise, they would declare the rescission of the conditional sale and the
forfeiture of his down payment based on the terms of the contract.
Tan refused to comply with the vendors demand and instead wrote them a
letter (dated May 28, 1993) claiming that the annotation on the title, made
pursuant to Section 4, Rule 74 of the Rules, constituted an encumbrance on the
property that would prevent the vendors from delivering a clean title to him. Thus,
he alleged that he could no longer be required to pay the balance of the purchase
price and demanded the return of his down payment.
When the vendors refused to refund the down payment, Tan, through
counsel, sent another demand letter to the vendors on June 18, 1993. The
vendors still refused to heed Tans demand, prompting Tan to file on June 19, 1993
a complaint with the RTC of Pasay City for specific performance against the
vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of
Lamberto Benolirao, together with Evelyn Monreal and Ann Karina Taningco
(collectively, the respondents). In his complaint, Tan alleged that there was a
novation of the Deed of Conditional Sale done without his consent since the
annotation on the title created an encumbrance over the property. Tan prayed for
the refund of the down payment and the rescission of the contract.
On August 9, 1993, Tan amended his Complaint, contending that if the
respondents insist on forfeiting the down payment, he would be willing to pay the
balance of the purchase price provided there is reformation of the Deed of

Conditional Sale. In the meantime, Tan caused the annotation on the title of a On appeal, the CA dismissed the petition and affirmed the ruling of the trial

notice of lis pendens. court in toto. Hence, the present petition.

On August 21, 1993, the respondents executed a Deed of Absolute Sale THE ISSUES

over the property in favor of Hector de Guzman (de Guzman) for the price

of P689,000.00. Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis

pendens annotation on TCT No. 27335. Due to the unauthorized novation of the

Thereafter, the respondents moved for the cancellation of the notice of lis agreement, Tan presented before the trial court two alternative remedies in his

pendens on the ground that it was inappropriate since the case that Tan filed was complaint either the rescission of the contract and the return of the down

a personal action which did not involve either title to, or possession of, real payment, or the reformation of the contract to adjust the payment period, so that

property. The RTC issued an order dated October 22, 1993 granting the Tan will pay the remaining balance of the purchase price only after the lapse of the

respondents motion to cancel the lis pendens annotation on the title. required two-year encumbrance on the title. Tan posits that the CA erroneously

disregarded the alternative remedy of reformation of contract when it affirmed the

Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman removal of the lis pendens annotation on the title.

registered the property and TCT No. 28104 was issued in his name. Tan then filed

a motion to carry over the lis pendens annotation to TCT No. 28104 registered in Tan further contends that the CA erred when it recognized the validity of

de Guzmans name, but the RTC denied the motion. the forfeiture of the down payment in favor of the vendors. While admitting that

the Deed of Conditional Sale contained a forfeiture clause, he insists that this

On September 8, 1995, after due proceedings, the RTC rendered judgment ruling clause applies only if the failure to pay the balance of the purchase price was

that the respondents forfeiture of Tans down payment was proper in accordance through his own fault or negligence. In the present case, Tan claims that he was

with the terms and conditions of the contract between the parties. [4] The RTC justified in refusing to pay the balance price since the vendors would not have

ordered Tan to pay the respondents the amount of P30,000.00, plus P1,000.00 per been able to comply with their obligation to deliver a clean title covering the

court appearance, as attorneys fees, and to pay the cost of suit. property.

Lastly, Tan maintains that the CA erred in ordering him to pay the
respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees,
since he filed the foregoing action in good faith, believing that he is in the right.
The respondents, on the other hand, assert that the petition should be dismissed
for raising pure questions of fact, in contravention of the provisions of Rule 45 of
the Rules which provides that only questions of law can be raised in petitions for
review on certiorari.
THE COURTS RULING
The petition is granted.
No new issues can be raised in
the Memorandum
At the onset, we note that Tan raised the following additional assignment
of errors in his Memorandum: (a) the CA erred in holding that the petitioner could
seek reformation of the Deed of Conditional Sale only if he paid the balance of the
purchase price and if the vendors refused to execute the deed of absolute sale;
and (b) the CA erred in holding that the petitioner was estopped from asking for
the reformation of the contract or for specific performance.
The Courts September 27, 2004 Resolution expressly stated that No new
issues may be raised by a party in his/its Memorandum. Explaining the reason for
this rule, we said that:
The raising of additional issues in a memorandum before
the Supreme Court is irregular, because said memorandum is
supposed to be in support merely of the position taken by the
party concerned in his petition, and the raising of new issues
amounts to the filing of a petition beyond the reglementary period.
The purpose of this rule is to provide all parties to a case a fair
opportunity to be heard. No new points of law, theories, issues or
arguments may be raised by a party in the Memorandum for the
reason that to permit these would be offensive to the basic rules of
fair play, justice and due process.[5]
Tan contravened the Courts explicit instructions by raising these additional
errors. Hence, we disregard them and focus instead on the issues previously raised
in the petition and properly included in the Memorandum.
Petition raises a question of
law
Contrary to the respondents claim, the issue raised in the present petition defined
in the opening paragraph of this Decision is a pure question of law. Hence, the
petition and the issue it presents are properly cognizable by this Court.
Lis pendens annotation not
proper in personal actions

Section 14, Rule 13 of the Rules enumerates the instances when a notice
of lis pendens can be validly annotated on the title to real property:
Sec. 14. Notice of lis pendens.
In an action affecting the title or the right of
possession of real property, the plaintiff and the defendant, when
affirmative relief is claimed in his answer, may record in the office
of the registry of deeds of the province in which the property is
situated a notice of the pendency of the action. Said notice shall
contain the names of the parties and the object of the action or
defense, and a description of the property in that province affected
thereby. Only from the time of filing such notice for record shall a
purchaser, or encumbrancer of the property affected thereby, be
deemed to have constructive notice of the pendency of the action,
and only of its pendency against the parties designated by their
real names.
The notice of lis pendens hereinabove mentioned may be
cancelled only upon order of the court, after proper showing that
the notice is for the purpose of molesting the adverse party, or
that it is not necessary to protect the rights of the party who
caused it to be recorded.
The litigation subject of the notice of lis pendens must directly involve a
specific property which is necessarily affected by the judgment. [6]
Tans complaint prayed for either the rescission or the reformation of the
Deed of Conditional Sale. While the Deed does have real property for its object, we
find that Tans complaint is an in personam action, as Tan asked the court to
compel the respondents to do something either to rescind the contract and return
the down payment, or to reform the contract by extending the period given to pay
the remaining balance of the purchase price. Either way, Tan wants to enforce his
personal rights against the respondents, not against the property subject of the
Deed. As we explained in Domagas v. Jensen:[7]
The settled rule is that the aim and object of an action
determine its character. Whether a proceeding is in rem, or in
personam, or quasi in rem for that matter, is determined by its
nature and purpose, and by these only. A proceeding in
personam is a proceeding to enforce personal rights and
obligations brought against the person and is based on the
jurisdiction of the person, although it may involve his right to, or
the exercise of ownership of, specific property, or seek to compel
him to control or dispose of it in accordance with the mandate of
the court. The purpose of a proceeding in personam is to impose,
through the judgment of a court, some responsibility or liability
directly upon the person of the defendant. Of this character are
suits to compel a defendant to specifically perform some act or
actions to fasten a pecuniary liability on him.
Furthermore, as will be explained in detail below, the contract between the parties
was merely a contract to sell where the vendors retained title and ownership to
the property until Tan had fully paid the purchase price. Since Tan had no claim of
ownership or title to the property yet, he obviously had no right to ask for the
annotation of a lis pendens notice on the title of the property.
Contract is a mere contract to
sell
 A contract is what the law defines it to be, taking into consideration its In the present case, the true nature of the contract is revealed by

essential elements, and not what the contracting parties call it. [8] Article 1485 of paragraph D thereof, which states:

the Civil Code defines a contract of sale as follows: xxx

d) That in case, BUYER has complied with the terms and conditions of
this contract, then the SELLERS shall execute and deliver to the BUYER
Art. 1458. By the contract of sale one of the contracting parties the appropriate Deed of Absolute Sale;
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in xxx
money or its equivalent.

A contract of sale may be absolute or conditional.

Jurisprudence has established that where the seller promises to execute a

deed of absolute sale upon the completion by the buyer of the payment of the
The very essence of a contract of sale is the transfer of ownership in
price, the contract is only a contract to sell. [12] Thus, while the contract is
exchange for a price paid or promised.[9]
denominated as a Deed of Conditional Sale, the presence of the above-quoted

provision identifies the contract as being a mere contract to sell.

In contrast, a contract to sell is defined as a bilateral contract whereby

the prospective seller, while expressly reserving the ownership of the A Section 4, Rule 74 annotation
property despite delivery thereof to the prospective buyer, binds himself to sell is an encumbrance on the
property
the property exclusively to the prospective buyer upon fulfillment of the

condition agreed, i.e., full payment of the purchase price.[10] A contract to sell may
While Tan admits that he refused to pay the balance of the purchase price,
not even be considered as a conditional contract of sale where the seller may
he claims that he had valid reason to do so the sudden appearance of an
likewise reserve title to the property subject of the sale until the fulfillment of a
annotation on the title pursuant to Section 4, Rule 74 of the Rules, which Tan
suspensive condition, because in a conditional contract of sale, the first
considered an encumbrance on the property.
element of consent is present, although it is conditioned upon the happening of

a contingent event which may or may not occur. [11]

We find Tans argument meritorious.
 The annotation placed on TCT No. 27335, the new title issued to reflect the

extrajudicial partition of Lamberto Benoliraos estate among his heirs, states: Senator Vicente Francisco discusses this provision in his book The Revised

Rules of Court in the Philippines,[13] where he states:

x x x any liability to credirots (sic), excluded heirs and
other persons having right to the property, for a period of two (2) The provision of Section 4, Rule 74 prescribes the
years, with respect only to the share of Erlinda, Andrew, procedure to be followed if within two years after an extrajudicial
Romano and Dion, all surnamed Benolirao [Emphasis partition or summary distribution is made, an heir or other person
supplied.] appears to have been deprived of his lawful participation in the
estate, or some outstanding debts which have not been paid are
discovered. When the lawful participation of the heir is not
This annotation was placed on the title pursuant to Section 4, Rule 74 of payable in money, because, for instance, he is entitled to a
part of the real property that has been partitioned, there
the Rules, which reads:
can be no other procedure than to cancel the partition so
made and make a new division, unless, of course, the heir
Sec. 4. Liability of distributees and estate. - If it shall appear at
agrees to be paid the value of his participation with
any time within two (2) years after the settlement and distribution
interest. But in case the lawful participation of the heir consists in
of an estate in accordance with the provisions of either of the first
his share in personal property of money left by the decedent, or in
two sections of this rule, that an heir or other person has been
case unpaid debts are discovered within the said period of two
unduly deprived of his lawful participation in the estate, such heir
years, the procedure is not to cancel the partition, nor to appoint
or such other person may compel the settlement of the estate in
an administrator to re-assemble the assets, as was allowed under
the courts in the manner hereinafter provided for the purpose of
the old Code, but the court, after hearing, shall fix the amount of
satisfying such lawful participation. And if within the same time
such debts or lawful participation in proportion to or to the extent
of two (2) years, it shall appear that there are debts
of the assets they have respectively received and, if circumstances
outstanding against the estate which have not been paid, or
require, it may issue execution against the real estate belonging to
that an heir or other person has been unduly deprived of his
the decedent, or both. The present procedure is more expedient
lawful participation payable in money, the court having
and less expensive in that it dispenses with the appointment of an
jurisdiction of the estate may, by order for that purpose, after
administrator and does not disturb the possession enjoyed by the
hearing, settle the amount of such debts or lawful
distributees.[14] [Emphasis supplied.]
participation and order how much and in what manner each
distributee shall contribute in the payment thereof, and
may issue execution, if circumstances require, against the
bond provided in the preceding section or against the real
estate belonging to the deceased, or both. Such bond and such An annotation is placed on new certificates of title issued pursuant to the
real estate shall remain charged with a liability to creditors, heirs, distribution and partition of a decedents real properties to warn third persons on
or other persons for the full period of two (2) years after such
distribution, notwithstanding any transfers of real estate that may the possible interests of excluded heirs or unpaid creditors in these
have been made. [Emphasis supplied.]
 effects of this provision are not limited to the heirs or
properties. The annotation, therefore, creates a legal encumbrance or lien original distributees of the estate properties, but shall
on the real property in favor of the excluded heirs or creditors. Where a affect any transferee of the properties. [Emphasis supplied.]

buyer purchases the real property despite the annotation, he must be

ready for the possibility that the title could be subject to the rights of

excluded parties. The cancellation of the sale would be the logical consequence Indeed, in David v. Malay,[17] although the title of the property had already

where: (a) the annotation clearly appears on the title, warning all would-be been registered in the name of the third party buyers, we cancelled the sale and

buyers; (b) the sale unlawfully interferes with the rights of heirs; and (c) the ordered the reconveyance of the property to the estate of the deceased for proper

rightful heirs bring an action to question the transfer within the two-year period disposal among his rightful heirs.

provided by law.
By the time Tans obligation to pay the balance of the purchase price arose

As we held in Vda. de Francisco v. Carreon:[15] on May 21, 1993 (on account of the extensions granted by the respondents), a

new certificate of title covering the property had already been issued on March 26,
And Section 4, Rule 74 xxx expressly authorizes the court
to give to every heir his lawful participation in the real estate 1993, which contained the encumbrance on the property; the encumbrance would
notwithstanding any transfers of such real estate and to issue
execution thereon. All this implies that, when within the remain so attached until the expiration of the two-year period. Clearly, at this
amendatory period the realty has been alienated, the court time, the vendors could no longer compel Tan to pay the balance of the purchase
in re-dividing it among the heirs has the authority to direct
cancellation of such alienation in the same estate since considering they themselves could not fulfill their obligation to transfer a
proceedings, whenever it becomes necessary to do so. To
clean title over the property to Tan.
require the institution of a separate action for such annulment
would run counter to the letter of the above rule and the spirit of
these summary settlements. [Emphasis supplied.]
Contract to sell is not rescinded
but terminated

Similarly, in Sps. Domingo v. Roces,[16] we said:

What then happens to the contract?
The foregoing rule clearly covers transfers of real property
to any person, as long as the deprived heir or creditor vindicates
his rights within two years from the date of the settlement and
distribution of estate. Contrary to petitioners contention, the
 We have held in numerous cases [18] that the remedy of rescission encumbrance on the property and not through his own fault or negligence, we find

and so hold that the forfeiture of Tans down payment was clearly unwarranted.
under Article 1191 cannot apply to mere contracts to sell. We explained the reason
Award of Attorneys fees
for this in Santos v. Court of Appeals,[19] where we said:

[I]n a contract to sell, title remains with the vendor and does not As evident from our previous discussion, Tan had a valid reason for
pass on to the vendee until the purchase price is paid in full. Thus,
in a contract to sell, the payment of the purchase price is a refusing to pay the balance of the purchase price for the property. Consequently,
positive suspensive condition. Failure to pay the price agreed there is no basis for the award of attorneys fees in favor of the respondents.
upon is not a mere breach, casual or serious, but a situation
that prevents the obligation of the vendor to convey title
from acquiring an obligatory force. This is entirely different
from the situation in a contract of sale, where non-payment of the On the other hand, we award attorneys fees in favor of Tan, since he was
price is a negative resolutory condition. The effects in law are not compelled to litigate due to the respondents refusal to return his down payment
identical. In a contract of sale, the vendor has lost ownership of
the thing sold and cannot recover it, unless the contract of sale is despite the fact that they could no longer comply with their obligation under the
rescinded and set aside. In a contract to sell, however, the
contract to sell, i.e., to convey a clean title. Given the facts of this case, we find
vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase the award of P50,000.00 as attorneys fees proper.
price. If the vendor should eject the vendee for failure to meet the
condition precedent, he is enforcing the contract and not Monetary award is subject to
rescinding it. x x x Article 1592 speaks of non-payment of the legal interest
purchase price as a resolutory condition. It does not apply to a
contract to sell. As to Article 1191, it is subordinated to the
provisions of Article 1592 when applied to sales of immovable
Undoubtedly, Tan made a clear and unequivocal demand on the vendors to
property. Neither provision is applicable [to a contract to sell].
[Emphasis supplied.] return his down payment as early as May 28, 1993. Pursuant to

We, therefore, hold that the contract to sell was terminated when the
our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[20] we hold
vendors could no longer legally compel Tan to pay the balance of the purchase
that the vendors should return the P200,000.00 down payment to Tan, subject to
price as a result of the legal encumbrance which attached to the title of the
the legal interest of 6% per annum computed from May 28, 1993, the date of the
property. Since Tans refusal to pay was due to the supervening event of a legal
first demand letter.
Furthermore, after a judgment has become final and executory, the rate of legal

interest, whether the obligation was in the form of a loan or forbearance of money

or otherwise, shall be 12% per annum from such finality until its satisfaction.

Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from

the date of first demand or from May 28, 1993. From the date the liability for the

principal obligation and attorneys fees has become final and executory, an annual

interest of 12% shall be imposed on these obligations until their final satisfaction,

this interim period being deemed to be by then an equivalent to a forbearance of

credit.

WHEREFORE, premises considered, we hereby GRANT the petition and,

accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of

Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the

Deed of Conditional Sale terminated and ordering the respondents to return

the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest

of 6% per annum, computed from May 28, 1993. The respondents are also

ordered to pay, jointly and severally, petitioner Delfin Tan the amount

of P50,000.00 as and by way of attorneys fees. Once this decision becomes final

and executory, respondents are ordered to pay interest at 12% per annum on the

principal obligation as well as the attorneys fees, until full payment of these

amounts. Costs against the respondents.

SO ORDERED.
G.R. No. L-29421 January 30, 1971
LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,
vs.
DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad litem,'
MARCELA B. SOLIVEN, REMEGIO BUTACAN and NEMESIO OATE, in their
private capacities and/or as Ex-Oficio Provincial Sheriff and Deputy
Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN, as Deputy
Register of Deeds of Cagayan, defendants-appellees.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto Soliven.
Alfredo J. Donato for defendant-appellant Nemesio Oate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff and
Deputy Register of Deeds.
REYES, J.B.L., J.:
This is an appeal from the decision of the Court of First Instance of Cagayan (Civil
Case No. 116-T), involving the public sale of a homestead to satisfy a civil
judgment against the grantee.
The records show that in an action filed in the Court of First Instance of Cagayan,
the spouses Lino Artates and Manuela Pojas sought annulment of the execution of
a homestead1 covered by Patent No. V-12775 issued to them by the proper land
authorities on 23 September 1952, and duly registered in their names (OCT No. P-
572). The public sale, conducted by the Provincial Sheriff of Cagayan on 2 June
1962, was made to satisfy a judgment against Lino Artates in the amount of
P1,476.35, and awarded to Daniel Urbi by the Justice of the Peace Court of
Camilaniugan, Cagayan, in its Civil Case No. 40, for physical injuries inflicted by
Artates upon Urbi on 21 October 1955. In the execution sale, the property was
sold to the judgment creditor, the only bidder, for P1,476.35. In their complaint,
the plaintiffs spouses alleged that the sale of the homestead to satisfy an
indebtedness of Lino Artates that accrued on 21 October 1955, violated the
provision of the Public Land law exempting said property from execution for any
debt contracted within five years from the date of the issuance of the patent; that
defendant Urbi, with the intention of defrauding the plaintiffs, executed on 26 June
1961 a deed for the sale of the same parcel of land to defendant Crisanto Soliven,
a minor, supposedly for the sum of P2,676.35; that as a result of the
aforementioned transactions, defendants Urbi and Soliven entered into the
possession of the land and deprived plaintiffs of the owners' share in the rice crops
harvested during the agricultural year 1961-1962. Plaintiffs, therefore, prayed that
the public sale of the land to defendant Urbi, as well as the deed of sale executed
by the latter in favor of defendant Soliven, be declared null and void; that
defendants be ordered to deliver to plaintiffs possession of the land; and to pay to
plaintiffs compensatory damages at the rate of P1,000.00 per agricultural year
until possession is finally restored to them, the sum of P2,000.00 as damages for
maliciously casting cloud upon plaintiffs' title on the land, plus attorneys' fees and
costs.
The defendants2 filed separate answers disputing the averments of the complaint.
On 29 March 1953, the court rendered judgment upholding the regularity and
validity of the execution conducted by the defendant Provincial Sheriff, but finding
that the sale of the lands by defendant Urbi to the minor Soliven was simulated,
intended to place the property beyond the reach of the judgment debtor, and that
plaintiffs had offered to redeem the land within the 5-year period allowed by
Section 119 of the Public Land law for reacquisition thereof by the grantee.
Consequently, the court declared the sale of the land by defendant Daniel Urbi to
defendant Crisanto Soliven null and void; and Daniel Urbi was ordered to reconvey
the property to the plaintiffs upon the latter's payment (to Urbi) of the sum of
P1,476.35 plus the sheriff's fee incident to the sale at public auction, with interest
thereon at the rate of 12% per annum from 2 June 1961 until said amount shall
have been fully paid, and the further sum of P783.45 representing the amount
paid by defendant Daniel Urbi to the Philippine National Bank for the release of the
real estate mortgage on the land, contracted by Lino Artates, with legal rate of
interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal assigning several
errors allegedly committed by the court below, all hinged on the validity or
invalidity of the public sale of the lot involved herein.
Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:
SEC. 118. Except in favor of the Government or any of its
branches, units, or institution, or legally constituted banking
corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from
the date of the approval of the application and for a term of five
years from and after the date of issuance of the patent or grant,
nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of said period, but the
improvements or crops on the land may be mortgaged or pledged
to qualified persons, associations or corporations.
xxx xxx xxx
As thus prescribed by law, for a period of five years from the date of the
government grant, lands acquired by free or homestead patent shall not only be
incapable of being encumbered or alienated except in favor of the government
itself or any of its institutions or of duly constituted banking corporations, but also,
they shall not be liable to the satisfaction of any debt contracted within the said
period,3 whether or not the indebtedness shall mature during or after the
prohibited time.4 This provision against the alienation or encumbrance of public
lands granted within five years from the issuance of the patent, it has been held, is
mandatory;5 a sale made in violation thereof is null and void6 and produces no
effect whatsoever. Though it may be a limitation on the right of ownership of the
grantee, the salutary purpose of the provision cannot be denied: it is to preserve
and keep for the homesteader or his family the land given to him gratuitously by
the State,7 so that being a property owner, he may become and remain a
contented and useful member of our society. 8
In the case at bar, the homestead patent covering the land in question (No.
V-12775) was issued to appellants on 23 September 1952, and it was sold at
public auction to satisfy the civil liability of appellant Lino Artates to Daniel Urbi,
adjudged in the 14 March 1956 decision of the Justice of the Peace Court of
Camalaniugan, Cagayan.lwph1.t There can be no doubt that the award of
damages to Urbi created for Artates a civil obligation, an indebtedness, that
commenced from the date such obligation was decreed on 14 March 1956.
Consequently, it is evident that it can not be enforced against, or satisfied out of,
the sale of the homestead lot acquired by appellants less than 5 years before the
obligation accrued. And this is true even if the sale involved here is not voluntary.
For purposes of complying with the law, it is immaterial that the satisfaction of the
debt by the encumbrancing or alienation of the land grant made voluntarily, as in
the case of an ordinary sale, or involuntarily, such as that effected through levy on
the property and consequent sale at public auction. In both instances, the spirit of
the law would have been violated.9
Doubts have been expressed as to whether the words "debt contracted prior to the
expiration of said period" (of 5 years from and after the grant) would include the
civil liability arising from a crime committed by the homesteader. While there is no
direct Philippine precedent on this point, there are various reasons why the non-
liability of the homestead grant should be extended to extra-contractual
obligations. First and foremost, whether it be viewed as an exemption or as a
condition attached to the grant to encourage people to settle and cultivate public
land, the immunity in question is in consonance with the definite public policy
underlying these grants, which is to "preserve and keep in the family of the
homesteader that portion of public land which the State has given to him" so he
may have a place to live with his family and become a happy citizen and a useful
member of society, 10 and the exemption should not be given restrictive
application. 11 A levy and sale of the homestead on account of extra-contractual
liability incurred would uproot the homesteader and his family and turn them into
homeless waifs as effectively as a levy for non-payment of a contractual debt.
Secondly, the word "debt" in exemption statutes,
in its wider sense, (it) includes all that is due to a man under any
form or obligation or promise, and covers not only obligations
arising under contract, but also those imposed by law without
contract. 12
Considering the protective policy of the law, it becomes apparent that "debt
contracted" was used in it in the sense of "obligation incurred," since Webster
gives the verb to "contract" the meaning of "to bring on; incur; acquire." Finally,
our public land laws being copied from American legislation, 13 resort to American
precedents reveals that, under the weight of authority, exemption from "debts
contracted" by a homesteader has been held to include freedom from money
liabilities, from torts or crimes committed by him, such as from bigamy (State vs.
O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander (Conway vs. Sullivan,
44 Ill. 451, 452), breach of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or
other torts (In Re Radway, 20 Fed. Cas. 154, 162).
The execution sale in this case being null and void, the possession of the land
should be returned to the owners, the herein appellants. There would even be no
need to order appellee Urbi to execute a deed of reconveyance thereof to the
owners. It appears that what was issued here to the judgment creditor/purchaser
was only the sheriff's provisional certificate, under which he derived no definite
title or right until the period for redemption has expired, without a redemption
having been made, 14 or issuance of a final deed or certificate of sale. In other
words, the purchaser herein has not acquired an absolute ownership or title in fee
over the land that would necessitate a deed of reconveyance to revert ownership
back to the appellant spouses. As things now stand, title to the property covered
by OCT No. P-572 remains with the appellants, but Lino Artates shall continue to
be under obligation to satisfy the judgment debt to Daniel Urbi in the sum of
P1,476.35, with legal interest thereon accruing from the date the writ of execution
was first returned unsatisfied. It appearing also that appellee Daniel Urbi paid to
the Philippine National Bank the sum of P783.45 to release the mortgage on the
land, appellants should reimburse him of said amount or of whatever amount
appellants have actually been benefited by the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is hereby
reversed, and appellants are declared entitled to the return and possession of the
lot covered by Original Certificate of Title No. P-572, without prejudice to their
continuing obligation to pay the judgment debt, and expenses connected
therewith. No costs.
Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.
Separate Opinions
MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the affirmance of the
appealed judgment in toto. The date of the issuance of the homestead patent to
appellants was September 23, 1952. Under Section 118 of the Public Land Law the
homestead could not be held liable for the satisfaction of any debt contracted
during a period of five years thereafter, or up to September 23, 1957. The opinion
of the majority holds that since the civil obligation of appellant Artates was
adjudged on March 14, 1956, or within the said period, the homestead cannot be
held liable for its satisfaction.lwph1.t The obvious implication is that if the
judgment had been delayed if for instance it had been rendered on September
24, 1957 the result would have been otherwise. I do not believe that such a
difference should be made to depend upon the more or less fortuitous and
irrelevant circumstance of when the judgment decreeing the obligation was
rendered. I am for giving the word "contracted," as used in the law, its ordinary
meaning, for after all one who contracts with a homestead patentee during the
five-year period and accepts an obligation from him does so with full knowledge of
the law's exempting provision, which is deemed in effect a part of the agreement.
The same, however, is not true of the victim of a tort or a crime, as in the present
case, for here his volition does not come into play, the obligation being imposed
entirely by law.
TEEHANKEE, J., concurring and dissenting:
I vote for the affirmance in toto of the judgment appealed from. Hence, I concur in
that portion of the decision decreeing that appellants should reimburse appellee
Urbi for the sums that Urbi had paid to the Philippine National Bank to release the
mortgage previously executed by appellants on the subject homestead land, but I
dissent from the principal decree thereof that "title to the property .... remains
with the appellants, but (appellant) Lino Artates shall continue to be under
obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35,
with legal interest thereon accruing from the date the writ of execution was first
returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the sheriff of
Artates' homestead lot acquired in 1952 to satisfy a 1956 judgment against
Artates in favor of Urbi (for physical injuries inflicted by Artates upon Urbi in
1955), at which public sale the homestead lot was sold to Urbi as the only bidder
for the amount of his judgment credit in the sum of P1,476.35 should be held null
and void, as the majority would now hold, by virtue of the prohibitory provisions of
Section 118 of the Public Land Law. The key provision cited is that providing that
such homesteads "shall not be subject to encumbrance or alienation from the date
of the approval of the application and for a term of five years from and after the
date of issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead property
made by the homesteader within the 5-year prohibition are null and void.
Similarly, the homestead is held not liable to the satisfaction of any
debt contracted by the homesteader within the said period, even though it
be contracted that the indebtedness shall mature after the prohibited period. The
law's purpose is clear and salutary: to preserve and keep for the homesteader the
land given to him gratuitously by the State and to protect him from his own
weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of Ubi * was
not contracted but duly adjudicated by a competent court in a lawful judgment for
injuries inflicted by Artates upon Urbi in 1955, which, gauging the same from the
substantial amount of P1,476.35 awarded, must have been quite serious. The
happenstance that Artates' assault on Urbi and the judgment award occurred
within the prohibitory period should not be construed beyond the law's text and
intent to favor the wrongdoer Artates as against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing that
Artates has a just and continuing obligation to pay Urbi the judgment debt, the
debt would in effect be nullified. The judgment debt was awarded since 1956 and
would by now have prescribed, but the majority decision would nullify the levy and
public sale of the land to satisfy Urbi's judgment credit conducted in 1966 long
after the expiration of the statutory five-year prohibitory period. The majority
decision bars Urbi forever from looking to Artates homestead property for the
satisfaction of his judgment credit. Artates' evasion of his judgment debt to Urbi is
thereby made certain. Any later creditor of Artates, real or simulated, from one
day after the expiration on 23 September 1957 of the said five-year prohibitory
period is given sole and exclusive preference to look to the said property for
satisfaction as against Urbi beyond whose reach it is placed, contrary to the
priority and preference that Urbi would lawfully be entitled to as a bona
fide judgment creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi within the 5-
year redemption period allowed by section 119 of the Public Land Law, the lower
court in its appealed judgment so ordered such redemption and reconveyance.
This strikes me as an eminently fair and just judgment which should be upheld.
Artates, the homesteader, is thus assured of keeping and preserving his
homestead in accordance ** with the spirit of the law and the lawful judgment
credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision of
Section 118 of the Public Land Law which says that "lands acquired under free
patent or homestead provisions shall not ... become liable to the satisfaction of
any debt contracted prior to the expiration of five years from and after the date of
issuance of the patent or grant" contemplates inclusively "the civil liability arising
from a crime committed by the homesteader" within said period. Indeed, I do not
feel it is necessary to go deep into the Webster's dictionary meaning of the verb
"to contract" or to look for state court decisions in America, which could be
isolated and based on statutes not similarly phrased and oriented as Ours, to
resolve the legal issue before Us, it being sufficient, towards that end, to consider
only the basic principles that underlie the disposition of public lands under our own
laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the cited
provision of the Public Land Law is to insure the accomplishment of the double
purpose of a homestead grant, which is to encourage the development of arable
lands and enhance their productivity in the interest of the national economy and,
at the same time, provide qualified citizens with a piece of land which they and
their families may call their own, on which they can live and which they can work
and thereby become useful members of society. Accordingly, the homesteader is
safeguarded against his own weaknesses imprudence and improvidence by making
it impossible for him to directly or indirectly, by his voluntary act, dispose of or
lose the land in favor of others. So also do the exceptions make it impossible for
him to allow himself to be utilized as dummy of opportunists. If this understanding
of mine is correct, it should follow necessarily that for these purposes to be
achieved, a homesteader must be, during the exempt period, in physical condition
to work the land granted to him. I cannot help wondering how a person who has
been convicted of a crime, the penalty for which is most likely to include a period
of incarceration can work on and develop his homestead in the manner conceived
in the law. That such a contingency may not be true in all instances, for there may
be punishment of crimes with imprisonment of insignificantly short duration or
even fines only, does not affect the general principle involved. I consider it implicit
in all land grants by the State that the grantees bind themselves to be loyal and
useful members of society, at least, during the period of development thereof that
the law contemplates, namely, the first five years from the grant. Surely, one who
commits an offense against the State and his fellow-citizens or other inhabitants in
this country is far from being a useful member of society. To be sure, his act of
committing an offense is voluntary, but this is not the voluntary act of imprudence
and improvidence against which the law guards the homesteader even against
himself. Crime is an assault upon the sovereign people and the social order, even
if not always directly against the national security, and it is my considered view
that, in principle, one who is guilty thereof forfeits whatever rights he might have
acquired by virtue of the State's generosity, particularly, when, as in this case, it is
a grant of a special privilege under specified circumstances and not generally and
commonly enjoyed by all citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which, after all,
recognizes the appellants' right to redeem the land in question under Section 119
of the Public Land Law, which is the most they should expect from the State, as
thus, their right to the land is reinstated without practically depriving the innocent
victims of the crime herein involved of their remedy for the private injury they
have suffered. In other words, under the trial court's decision, all the ends of
justice and equity are subserved, whereas it is difficult to say the same of the
decision of this Court.
REYES, J.B.L., J.:
Separate Opinions
MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the affirmance of the
appealed judgment in toto. The date of the issuance of the homestead patent to
appellants was September 23, 1952. Under Section 118 of the Public Land Law the
homestead could not be held liable for the satisfaction of any debt contracted
during a period of five years thereafter, or up to September 23, 1957. The opinion
of the majority holds that since the civil obligation of appellant Artates was
adjudged on March 14, 1956, or within the said period, the homestead cannot be
held liable for its satisfaction. The obvious implication is that if the judgment had
been delayed if for instance it had been rendered on September 24, 1957 the
result would have been otherwise. I do not believe that such a difference should
be made to depend upon the more or less fortuitous and irrelevant circumstance of
when the judgment decreeing the obligation was rendered. I am for giving the
word "contracted," as used in the law, its ordinary meaning, for after all one who
contracts with a homestead patentee during the five-year period and accepts an
obligation from him does so with full knowledge of the law's exempting provision,
which is deemed in effect a part of the agreement.lwph1.t The same, however,
is not true of the victim of a tort or a crime, as in the present case, for here his
volition does not come into play, the obligation being imposed entirely by law.
TEEHANKEE, J., concurring and dissenting:
I vote for the affirmance in toto of the judgment appealed from. Hence, I concur in
that portion of the decision decreeing that appellants should reimburse appellee
Urbi for the sums that Urbi had paid to the Philippine National Bank to release the
mortgage previously executed by appellants on the subject homestead land, but I
dissent from the principal decree thereof that "title to the property .... remains
with the appellants, but (appellant) Lino Artates shall continue to be under
obligation to satisfy the judgment debt to Daniel Urbi in the sum of P1,476.35,
with legal interest thereon accruing from the date the writ of execution was first
returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the sheriff of
Artates' homestead lot acquired in 1952 to satisfy a 1956 judgment against
Artates in favor of Urbi (for physical injuries inflicted by Artates upon Urbi in
1955), at which public sale the homestead lot was sold to Urbi as the only bidder
for the amount of his judgment credit in the sum of P1,476.35 should be held null
and void, as the majority would now hold, by virtue of the prohibitory provisions of
Section 118 of the Public Land Law. The key provision cited is that providing that
such homesteads "shall not be subject to encumbrance or alienation from the date
of the approval of the application and for a term of five years from and after the
date of issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead property
made by the homesteader within the 5-year prohibition are null and void.
Similarly, the homestead is held not liable to the satisfaction of any
debt contracted by the homesteader within the said period, even though it
be contracted that the indebtedness shall mature after the prohibited period. The
law's purpose is clear and salutary: to preserve and keep for the homesteader the
land given to him gratuitously by the State and to protect him from his own
weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of Ubi * was
not contracted but duly adjudicated by a competent court in a lawful judgment for
injuries inflicted by Artates upon Urbi in 1955, which, gauging the same from the
substantial amount of P1,476.35 awarded, must have been quite serious. The
happenstance that Artates' assault on Urbi and the judgment award occurred
within the prohibitory period should not be construed beyond the law's text and
intent to favor the wrongdoer Artates as against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing that
Artates has a just and continuing obligation to pay Urbi the judgment debt, the
debt would in effect be nullified. The judgment debt was awarded since 1956 and
would by now have prescribed, but the majority decision would nullify the levy and
public sale of the land to satisfy Urbi's judgment credit conducted in 1966 long
after the expiration of the statutory five-year prohibitory period.lwph1.t The
majority decision bars Urbi forever from looking to Artates homestead property for
the satisfaction of his judgment credit. Artates' evasion of his judgment debt to
Urbi is thereby made certain. Any later creditor of Artates, real or simulated, from
one day after the expiration on 23 September 1957 of the said five-year
prohibitory period is given sole and exclusive preference to look to the said
property for satisfaction as against Urbi beyond whose reach it is placed, contrary
to the priority and preference that Urbi would lawfully be entitled to as a bona
fide judgment creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi within the 5-
year redemption period allowed by section 119 of the Public Land Law, the lower
court in its appealed judgment so ordered such redemption and reconveyance.
This strikes me as an eminently fair and just judgment which should be upheld.
Artates, the homesteader, is thus assured of keeping and preserving his
homestead in accordance ** with the spirit of the law and the lawful judgment
credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision of
Section 118 of the Public Land Law which says that "lands acquired under free
patent or homestead provisions shall not ... become liable to the satisfaction of
any debt contracted prior to the expiration of five years from and after the date of
issuance of the patent or grant" contemplates inclusively "the civil liability arising
from a crime committed by the homesteader" within said period. Indeed, I do not
feel it is necessary to go deep into the Webster's dictionary meaning of the verb
"to contract" or to look for state court decisions in America, which could be
isolated and based on statutes not similarly phrased and oriented as Ours, to
resolve the legal issue before Us, it being sufficient, towards that end, to consider
only the basic principles that underlie the disposition of public lands under our own
laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the cited
provision of the Public Land Law is to insure the accomplishment of the double
purpose of a homestead grant, which is to encourage the development of arable
lands and enhance their productivity in the interest of the national economy and, REYES, J.B.L., J., concu.r
at the same time, provide qualified citizens with a piece of land which they and
their families may call their own, on which they can live and which they can work
and thereby become useful members of society. Accordingly, the homesteader is
safeguarded against his own weaknesses imprudence and improvidence by making
it impossible for him to directly or indirectly, by his voluntary act, dispose of or
lose the land in favor of others. So also do the exceptions make it impossible for
him to allow himself to be utilized as dummy of opportunists. If this understanding
of mine is correct, it should follow necessarily that for these purposes to be
achieved, a homesteader must be, during the exempt period, in physical condition
to work the land granted to him. I cannot help wondering how a person who has
been convicted of a crime, the penalty for which is most likely to include a period
of incarceration can work on and develop his homestead in the manner conceived
in the law. That such a contingency may not be true in all instances, for there may
be punishment of crimes with imprisonment of insignificantly short duration or
even fines only, does not affect the general principle involved. I consider it implicit
in all land grants by the State that the grantees bind themselves to be loyal and
useful members of society, at least, during the period of development thereof that
the law contemplates, namely, the first five years from the grant. Surely, one who
commits an offense against the State and his fellow-citizens or other inhabitants in
this country is far from being a useful member of society. To be sure, his act of
committing an offense is voluntary, but this is not the voluntary act of imprudence
and improvidence against which the law guards the homesteader even against
himself. Crime is an assault upon the sovereign people and the social order, even
if not always directly against the national security, and it is my considered view
that, in principle, one who is guilty thereof forfeits whatever rights he might have
acquired by virtue of the State's generosity, particularly, when, as in this case, it is
a grant of a special privilege under specified circumstances and not generally and
commonly enjoyed by all citizens/inhabitants of the country.

For these reasons, I vote to affirm the judgment of the court a quo which, after all,
recognizes the appellants' right to redeem the land in question under Section 119
of the Public Land Law, which is the most they should expect from the State, as
thus, their right to the land is reinstated without practically depriving the innocent
victims of the crime herein involved of their remedy for the private injury they
have suffered. In other words, under the trial court's decision, all the ends of
justice and equity are subserved, whereas it is difficult to say the same of the
decision of this Court.
G.R. No. L-54070 February 28, 1983
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA ZAMBALES, petitioners,
vs.
COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C.
PREYSLER and JOAQUIN B. PREYSLER, respondents.
MELENCIO-HERRERA, J.:
The Decision of respondent Court of Appeals in the case entitled "Enrique
Zambales and Joaquina Zambales, Plaintiffs-appellees vs. Atty. Perfecto de los
Reyes, Nin Bay Mining Corporation and Joaquin B. Preysler, Defendants-
appellants" (CA-G.R. No. 59386-R), setting aside the judgment of the Court of
First Instance of Palawan in Civil Case No. 678 for Annulment of a Deed of Sale
with Recovery of Possession and Ownership with Damages", is the subject of this
Petition for Review on Certiorari.
Joaquin B. Preysler is now deceased and was substituted by Angela C. Preysler, his
widow.
Atty. Perfecto de los Reyes was originally a defendant in Civil Case No. 678 but he
did not appeal from the Decision of the lower Court.
The Zambales spouses (Zambaleses, for brevity) were the homestead patentees of
a parcel of land with an area of 17,8474 hectares situated in the Municipality of
Del Pilar, Roxas, Palawan, covered by Original Certificate of Title No. G 1193 of the
Registry of Deeds for the Province of Palawan, issued pursuant to Homestead
Patent No. V-59502 dated September 6, 1955.
Claiming that the Nin Bay Mining Corporation (Corporation, for short) had removed
silica sand from their land and destroyed the plants and others improvements
thereon, the Zambaleses instituted, on November 10, 1958, Civil Case No. 316
before the Court of First Instance of Palawan claiming damages in the total sum of
P48,000.00.
The Corporation denied having caused any damages and claimed that it had
excavated and extracted silica sand only from its own mining claims and on which
it had mining lease contracts with the Philippine Government.
On October 29, 1959, the Zambaleses, duly assisted by their counsel, Atty.
Perfecto de los Reyes, and the Corporation, entered into a Compromise
Agreement, the portions of which, pertinent to this case, read:
1. DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY
(P20.00) PESOS per hectare per year from September 9, 1955 to
September 30, 1960, or a total rental price of ONE THOUSAND
SEVEN HUNDRED EIGHTY-FOUR PESOS AND SEVENTY- FOUR
CENTAVOS (P1,784.74), Philippine currency, in lieu of all
damages...
2. The payment to the PLAINTIFFS of the above-mentioned rental
price shall be considered full, absolute and final payment and
indemnity for all the alleged damages to PLAINTIFFS' property and
its improvements, or any other actual, moral, exemplary or other
damages that PLAINTIFFS may have suffered or will suffer in
connection with the mining operations of DEFENDANT on the
property in question, which property, by virtue of the terms of this
Agreement shall be used by DEFENDANT as occupant thereof until
September 30, 1960.
3. PLAINTIFFS hereby agree and bind themselves to sell, transfer
and convey, and DEFENDANT or its assigns, qualified to acquire or
hold lands of the public domain, hereby agrees to purchase and
pay for, the aforesaid property of the PLAINTIFFS, containing an
area of 17.8474 hectares, situated in the Municipality of Del Pilar,
Roxas, Palawan, and covered by Original Certificate of Title No.
G1193 of the Registry of Deeds of Palawan, at the fixed selling
price of FIVE HUNDRED (P500.00) PESOS per hectare or a total
 purchase price of EIGHT THOUSAND NINE HUNDRED TWENTY
THREE PESOS and SEVENTY CENTAVOS (P8,923.70), Philippine
currency. The contract to purchase and sell herein provided for,
shall be reciprocally demandable and enforceable by the parties
hereto on September 10, 1960. PLAINTIFFS hereby irrevocably
constitute and appoint DEFENDANT, its successors and/or assigns
their true and lawful attorney-in-fact with full power and authority
to sell, transfer and convey on September 10, 1960 or at any time
thereafter the whole or any part of PLAINTIFFS' property
hereinabove mentioned to the DEFENDANT, its successors and/or
assigns, or to any third party, and to execute and deliver all
instruments and documents whatsoever necessary for the purpose,
and all acts done and to be done by DEFENDANT, its successors
and/or assigns in conformity with the powers herein granted are
hereby ratified and confirmed by the PLAINTIFFS. ...
4. In consideration of the payment of the amount of P1,784.74 by
DEFENDANT, and of other good and valuable consideration,
PLAINTIFFS, jointly and severally, hereby forever release, fully and
completely, said DEFENDANT, its successors and/or assigns in
interest, from any and all liabilities, whether arising from past,
present or future excavation or removal of silica sand from the
property in question or otherwise, and from all the other claims
against the DEFENDANT contained in their Complaint in Civil Case
No. 316 of the Court of First Instance of Palawan. 1
The Trial Court rendered judgment on October 29, 1959 based on the Compromise
Agreement. The document was duly annotated an OCT No. G - 1193 (Exhibit " A ")
the day after, or on October 30, 1959 (Exhibit " 10 A ").
On September 10, 1960, the Corporation, as attorney-in-fact for the Zambaleses,
as Vendors, sold the disputed property to Joaquin B. Preysler for the sum of
P8,923.70 fixed in the Compromise Agreement (Exhibit " 11 "). Transfer Certificate
of Title No. T-970 was issued in the vendee's name on December 19, 1960 (Exhibit
" 2 ").
The Deed of Sale to Preysler contained the following proviso:
The VENDORS hereby represent and warrant that the five-year
restrictive period on alienation of lands acquired under the
homestead provisions of Commonwealth Act No. 141, as amended,
otherwise known as the Public Land Act, has already expired, the
date of issuance of the herein homestead patent to the VENDORS
as aforesaid being September 6, 1955 as shown in Original
Certificate of Title No. G-1193.
On October 18, 1960, the Secretary of Agriculture and Natural Resources approved
the sale to Preysler of the subject property (Exhibit "13 ").
On. December 6, 1969, or ten (10) years after the Trial Court's Decision based on
the Compromise Agreement, and nine (9) years after the sale to Preysler, the
Zambaleses filed Civil Case No. 678 before the Court of First Instance of Palawan
for "Annulment of a Deed of Sale with Recovery of Possession and Ownership with
Damages". They contended that it was their lawyer who prevailed upon them to
sign the Compromise Agreement; that they are unschooled and did not understand
the contents thereof; that they were made to understand that they would receive
the sum of P10,700.00, only as payment for damages sustained by the land from
1955 to 1960; that through fraud, deceit and manipulation by their lawyer and the
Corporation, they were made to agree to appoint the Corporation as their
attorney-in-fact with full power and authority to sell; that it was never their
intention to sell the land; that in September 1969, they were surprised to learn
that the land was already titled in the name of Joaquin B. Preysler; that the land
was acquired and registered in the latter's name through fraud and deceit. The
Zambaleses then prayed that the deed of sale and the title in Preysler's name be
annulled on the ground of fraud and that the property be reconveyed to them.
In their Answer, the Corporation denied all allegations that the Zambaleses had
signed the Compromise Agreement without understanding the contents thereof,
the truth being that it was read to them by their counsel, Atty. Perfecto de los
Reyes, who explained thoroughly the full implication and legal consequence of
each and every provision, which was then submitted and approved by then
Presiding Judge Juan L. Bocar; and that the Corporation had sold the property to
Preysler as a duly constituted attorney-in-fact pursuant to the Compromise
Agreement.
After trial, the lower Court rendered judgment in favor of the Zambaleses, the
dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
and against the defendants as follows:
1) That the deed of sale executed by Nin Bay Mining Corporation
through its president, to Joaquin B. Preysler is hereby declared null
and void;
2) That the defendant Joaquin B. Preysler is hereby ordered to
reconvey the land subject matter of this litigation to the plaintiffs;
3) That the defendants Nin Bay Mining Corporation and Joaquin B.
Preysler shall pay the plaintiffs the sum of P85,000.00 as actual
damages plus the legal rate of interest from September 30, 1960
up to the time the amount is fully paid;
4) That the defendants to pay the sum of FIVE THOUSAND
(P5,000.00) PESOS as attorneys fees; and
5) The defendants to pay the costs.
On appeal by the Corporation, the Court of Appeals reversed the Trial Court, after
finding that the alleged fraud or misrepresentation in the execution of the
Compromise Agreement had not been substantiated by evidence.
The case is now before us on review.
The controversy revolves around the issue of due execution and validity of the
Compromise Agreement (Exhibit "8") dated October 29; 1959, and of the
subsequent Deed of Sale (Exhibit "11 "), dated 10 September 1960.
I
The general rule is that whoever alleges fraud or mistake must substantiate his
allegation, since the presumption is that a person takes ordinary care of his
concerns and that private transactions have been fair and regular. The rule admits
of an exception in Article 1332 of the Civil Code which provides:
When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
For the proper application of said provision, it has first to be established
convincingly that the illiterate or the party at a disadvantage could not read or
understand the language in which the contract was written. 2 The evidence
discloses that the spouses Zambales are unschooled. They cannot read, speak,
much less understand English or write, except to sign their names. 3 The
Zambaleses alleged in their Complaint that the Compromise Agreement (Exhibit
"8") was executed through fraud by the Corporation and by their counsel Atty.
Perfecto de los Reyes, whom they included as a defendant. The burden of proof,
therefore, shifted to the Corporation to show that the compromise agreement had
been fully explained to the plaintiffs.
In refuting the allegation that plaintiffs were misled into signing the compromise
agreement, their former counsel, Atty. Perfecto de los Reyes, and the notary, Atty.
Salomon Reyes, a lawyer for Nin Bay Mining Corporation, established that the
terms and conditions of the Compromise Agreement were thoroughly explained
and fully understood by the spouses Zambales in accordance with their proposal to
sell the land at P500.00 a hectare; that before the signing of the Compromise
Agreement, the notary requested Atty. de los Reyes to read and explain each and
every provision to the spouses, and with the help of Ricardo Nunala, Atty. de los
Reyes did so in their dialect (Cuyuno). Thereafter, the parties went to Judge Juan
Bocar, who was assured that the spouses Zambales understood and signed the
Compromise Agreement. 4
We sustain the finding of the Court of Appeals that fraud and misrepresentation
did not vitiate petitioners' consent to the Agreement when it observed:
Taking into account the foregoing observations, this Court is not
convinced that indeed appellees were victims of a fraudulent
scheme employed upon them by their former counsel by reason of
their alleged illiteracy and ignorance. The evidence discloses that
appellees, although unschooled, are intelligent, well-informed and
intelligent people. They are not the kind of persons who could
easily be fooled of their rights and interests. Even as commented
by the court a quo, which had a chance to observe the demeanor
of the witness, it had no observation that the witness, Joaquina
Zambales, is ignorant. As correctly observed by appellants,
appellees 'are political leaders and chief campaigners; they speak
in the platform during political rallies; and they are widely
travelled' (p. 28, Appellants' Brief). As a matter of fact they are
knowledgeable of the right connections in the government. They
had approached former Sen. Rogelio de la Rosa, no less, the
congressman and the governor. Even the lawyers they have
retained previous to their present counsel are the Padilla Law
Office and the Diokno Law Office, It is common knowledge that
these law offices are among the established law offices in Manila.
It is far convincing that an ignorant couple would have knowledge
of these law firms. All these are obvious manifestations of their
being well-informed and the way they have conducted their way of
living apparently is inconsistent with the plea of being illiterate
and/or ignorant. They cannot capitalize on the fact that they are
uneducated only because they had no formal schooling inasmuch
as one's knowledge of the facts of life is not dependent on whether
one had formal schooling or not and it does not necessarily follow
always that if one is unschooled he is ignorant.
Furthermore, when plaintiffs-appellees signed the questioned
compromise agreement they were duly assisted and represented
by their counsel, Atty. de los Reyes. When Atty. de los Reyes
testified in court he categorically declared that it was to the best
interest of his clients that they compromise Civil Case No. 316.
This declaration finds support in Joaquina Zambales' testimony
wherein she stated thus:
ATTY. SEMBRANO:
Q. Except for this present case, would you say to
the Court that Atty. de los Reyes extended to you
legal assistance to your satisfaction?
A. Yes, sir, he is good to us.
xxx xxx xxx
Q. So these people never gave their services to
you?
A. Nobody was able to help us except Atty. de los
Reyes. (Tsn., pp. 29, 31 & 32, June 19, 1974)
... Thus, it having been established that appellees could not have
been misled by their former counsel into signing the compromise
agreement and taking into account the acts of the appellees and
their children subsequent to the execution of the compromise
agreement perforce the court a quo erred in not giving credence to
the clear and convincing testimonies of Atty. Perfecto de los Reyes
and Atty. Salomon Reyes anent the execution of the compromise
agreement. 5
However, although we find that the Zambaleses were not misled into signing the
Compromise Agreement, we hold that there has been violation of the Public Land
Act. The evidence on record shows that the land in question was awarded t the
Zambaleses as a homestead on September 6, 1955 (Exhibit "A"). Before us, the
Zambaleses now argue that the Compromise Agreement executed on October 29,
1959 is in violation of the Public Land Act, which prohibits alienation and
encumbrance of a homestead lot within five years from the issuance of the
patent. 6
We sustain that contention. The fact that the issue was not raised in the Courts
below is not a deterrent factor considering that the question affects the validity of
the agreement between the parties. The Supreme Court has the authority to
review matters even if they are not assigned as errors in the appeal, if it is found
that their consideration is necessary in arriving at a just decision of the
case. 7 Moreover, a party may change his legal theory on appeal only when the
factual bases thereof would not require presentation of any further evidence by the
adverse party in order to enable it to properly meet the issue raised in the new
theory. 8 In the case at bar it is indisputable that Homestead Patent No. V-59502
was issued on September 6, 1955 as shown in Original Certificate of Title No. 1193
(Exhibit "A ").
The sale of a homestead lot within the five-year prohibitory period is illegal and
void. The law does not distinguish between executory and consummated sales.
The law prohibiting any transfer or alienation of homestead land
within five years from the issuance of the patent does not
distinguish between executory and consummated sales; and it
would hardly be in keeping with the primordial aim of this
prohibition to preserve and keep in the family of the homesteader
the piece of land that the state had gratuitously given to them, to
hold valid a homestead sale actually perfected during the period of
prohibition but with the execution of the formal deed of
conveyance and the delivery of possession of the land sold to the
buyer deferred until after the expiration of the prohibitory period,
purposely to circumvent the very law that prohibits and declares
invalid such transaction to protect the homesteader and his
family. 9
In the compromise agreement executed between the parties, (1) the Zambaleses
promised to sell and the Corporation agreed to buy the disputed lot at P500.00 per
hectare, the contract to be reciprocally demandable and enforceable on September
10, 1960; and as a substitute procedure, (2) an irrevocable agency was
constituted in favor of the Corporation as attorney- in-fact to sell the land to any
third person on September 10, 1960 or any time thereafter.
Clearly, the bilateral promise to buy and sell the homestead lot at a price certain,
which was reciprocally demandable 10, was entered into within the five-year
prohibitory period and is therefore, illegal and void. Further, the agency to sell the
homestead lot to a third party was coupled with an interest inasmuch as a bilateral
contract was dependent on it and was not revocable at will by any of the
parties.11 To all intents and purposes, therefore, there was an actual executory
sale perfected during the period of prohibition except that it was reciprocally
demandable thereafter and the agency to sell to any third party was deferred until
after the expiration of the prohibitory period. That "rentals" were ostensibly to be
paid during the five-year prohibitory period, and the agency to sell made effective
only after the lapse of the said period, was merely a devise to circumvent the
prohibition.
To hold valid such an arrangement would be to throw the door wide open to all
possible subterfuges that persons interested in homesteads may devise to defeat
the legal prohibition against alienation within five years from the issuance of the
patent.
We hold, therefore, that the bilateral promise to buy and sell, and the agency to
sell, entered into within five years from the date of the homestead patent, was in
violation of section 118 of the Public Land Law, although the executed sale was
deferred until after the expiration of the five-year- prohibitory period.
As the contract is void from the beginning, for being expressly prohibited by
law 12 the action for the declaration of its inexistence does not prescribe. 13 Being
absolutely void, it is entitled to no authority or respect, the sale may be
impeached in a collateral proceeding by any one with whose rights and interest it
conflicts. There is no presumption of its validity. 14 The approval of the sale by the
Secretary of Agriculture and Natural Resources after the lapse of five years from
the date of the patent would neither legalize the sale. 15
The homestead in question should be returned to the Zambaleses, petitioners
herein, who are, in turn, bound to restore to the Corporation the sum of P8,923.70
as the price thereof. The actual damages awarded by the Trial Court of P85,000.00
have not been adequately substantiated. Moreover, under the agreement, the total
rental price of P1,784.74 was intended to be "in lieu of all damages, or any other
actual, moral, exemplary or other damages.
This is without prejudice to the corresponding action on the part of the State for
reversion of the property and its improvements, if any, under Section 124 of the
Public Land Act. 16
WHEREFORE, the judgment under review is hereby REVERSED, and another one
entered (1) declaring null and void a) the bilateral promise to buy and sell entered
into between Enrique Zambales and Joaquina Zambales, on the one hand, and the
Nin Bay Mining Corporation on the other, and b) the sale executed by Nin Bay
Mining Corporation in favor of Joaquin B. Preysler; (2) ordering Angela C. Preysler
to reconvey the land subject matter of this litigation to petitioners upon refund by
the latter to the Nin Bay Mining Corporation of the sum of P8,923.70, all expenses
for the reconveyance to be borne by private respondents; (3) ordering Nin Bay
Mining Corporation to pay rentals to petitioners at the price of P20.00 per hectare
per year from December 6, 1969, the date of the institution of the Complaint, till
the date that possession is turned over to petitioners; and (4) ordering the
Register of Deeds for the Province of Palawan to cancel Transfer Certificate of Title
No. T-970 of his Registry, and reissue to the Heirs of Enrique Zambales and
Joaquina Zambales the title to the homestead in question.

Let a copy of this Decision be served on the Solicitor General.

No costs.

SO ORDERED.
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was
entered into by and between the plaintiff, as party of the first part, and J. Parsons
(to whose rights and obligations the present defendant later subrogated itself), as
party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND
J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR
THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN
ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds
in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for
the latter's establishment in Iloilo, and shall invoice them at the same
price he has fixed for sales, in Manila, and, in the invoices, shall make and
allowance of a discount of 25 per cent of the invoiced prices, as
commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the vessel
at the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment,
said payment when made shall be considered as a prompt payment, and
as such a deduction of 2 per cent shall be made from the amount of the
invoice.
The same discount shall be made on the amount of any invoice which Mr.
Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before
hand of any alteration in price which he may plan to make in respect to his
beds, and agrees that if on the date when such alteration takes effect he
should have any order pending to be served to Mr. Parsons, such order
shall enjoy the advantage of the alteration if the price thereby be lowered,
but shall not be affected by said alteration if the price thereby be
increased, for, in this latter case, Mr. Quiroga assumed the obligation to
invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the
benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference
to Mr. Parsons in case anyone should apply for the exclusive agency for
any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the
sale of "Quiroga" beds in all the towns of the Archipelago where there are
no exclusive agents, and shall immediately report such action to Mr.
Quiroga for his approval.
 ART. 4. This contract is made for an unlimited period, and may be
terminated by either of the contracting parties on a previous notice of
ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of
them constitute the subject matter of this appeal and both substantially amount to
the averment that the defendant violated the following obligations: not to sell the
beds at higher prices than those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to
pay for the advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the
obligation on the part of the defendant to order the beds by the dozen and in no
other manner, none of the obligations imputed to the defendant in the two causes
of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations
are implied in a contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for
the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In
the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the
latter might order, at the price stipulated, and that the defendant was to pay the
price in the manner stipulated. The price agreed upon was the one determined by
the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25
per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred,
and in these last two cases an additional discount was to be allowed for prompt
payment. These are precisely the essential features of a contract of purchase and
sale. There was the obligation on the part of the plaintiff to supply the beds, and,
on the part of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent received
the thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not succeed
in selling it, he returns it. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to
whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the
defendant and the plaintiff is one of purchase and sale, in order to show that it
was not one made on the basis of a commission on sales, as the plaintiff claims it
was, for these contracts are incompatible with each other. But, besides, examining
the clauses of this contract, none of them is found that substantially supports the
plaintiff's contention. Not a single one of these clauses necessarily conveys the
idea of an agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount on the
invoice price. The word agency, also used in articles 2 and 3, only expresses that
the defendant was the only one that could sell the plaintiff's beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-
president of the defendant corporation and who established and managed the
latter's business in Iloilo. It appears that this witness, prior to the time of his
testimony, had serious trouble with the defendant, had maintained a civil suit
against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and,
when questioned as to what was his purpose in contracting with the plaintiff,
replied that it was to be an agent for his beds and to collect a commission on
sales. However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But, even supposing
that Ernesto Vidal has stated the truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as we have
said, a contract of purchase and sale, and not one of commercial agency. This only
means that Ernesto Vidal was mistaken in his classification of the contract. But it
must be understood that a contract is what the law defines it to be, and not what
it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it
could not sell; that, without previous notice, it forwarded to the defendant the
beds that it wanted; and that the defendant received its commission for the beds
sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows
that, on the part of both of them, there was mutual tolerance in the performance
of the contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts
of the contracting parties, subsequent to, and in connection with, the execution of
the contract, must be considered for the purpose of interpreting the contract,
when such interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the contract
belongs to a certain kind and not to another. Furthermore, the return made was of
certain brass beds, and was not effected in exchange for the price paid for them,
but was for other beds of another kind; and for the letter Exhibit L-1, requested
the plaintiff's prior consent with respect to said beds, which shows that it was not
considered that the defendant had a right, by virtue of the contract, to make this
return. As regards the shipment of beds without previous notice, it is insinuated in
the record that these brass beds were precisely the ones so shipped, and that, for
this very reason, the plaintiff agreed to their return. And with respect to the so-
called commissions, we have said that they merely constituted a discount on the
invoice price, and the reason for applying this benefit to the beds sold directly by
the plaintiff to persons in Iloilo was because, as the defendant obligated itself in
the contract to incur the expenses of advertisement of the plaintiff's beds, such
sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one
expressly imposed by the contract, the effect of its breach would only entitle the
plaintiff to disregard the orders which the defendant might place under other
conditions; but if the plaintiff consents to fill them, he waives his right and cannot
complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations
the breach of which is alleged as a cause of action are not imposed upon the
defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So
ordered.

Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

G.R. No. 55793 May 18, 1990 The records disclose that petitioner is a domestic corporation, duly organized and
existing under the laws of the Philippines, with business address at Longos,
CONCRETE AGGREGATES, INC., petitioner, Quezon City. It has an aggregate plant at Montalban, Rizal which processes rock
vs. aggregates mined by it from private lands. Petitioner also maintains and operates
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL a plant at Longos, Quezon City for the production of ready-mixed concrete and
REVENUE, respondents. plant-mixed hot asphalt.

Santiago, Tinga & Associates for petitioner. Sometime in 1968, the agents of respondent commissioner conducted an
investigation of petitioner's tax liabilities. As a consequence thereof, in a letter
dated December 14, 1970 said respondent assessed and demanded payment from
petitioner of the amount of P244,002.76 as sales and ad valorem taxes for the first
semester of 1968, inclusive of surcharges. Petitioner disputed the said assessment
REGALADO, J.: in its letter dated February 2, 1971 without, however, contesting the portion
pertaining to the ad valorem tax.
This petition for review on certiorari seeks the annulment of the decision of
respondent Court of Tax Appeals, 1 dated September 19, 1980, and its resolution In his letter dated July 24, 1972, respondent reiterated the said assessment of
denying reconsideration thereof, dated December 3, 1980, both promulgated in sales and ad valorem taxes which, as explained in his preceding letter, had been
CTA Case No. 2433, entitled "Concrete Aggregates, Inc. vs. Commissioner of arrived at as follows. 3
Internal Revenue," the decretal portion of which decision reads:
Taxable sales P 4,164,092.44
Having reached the conclusion that petitioner is a manufacturer
subject to the 7% sales tax under Section 186 of the then National
Internal Revenue Code, the decision of respondent dated July 24,
7% sales tax due thereon P 291,486.47
1972 should therefore be sustained. Accordingly, petitioner
Concrete Aggregates, Inc. is hereby ordered to pay to respondent
Commissioner of Internal Revenue the total amount of Less: Tax already paid 116,523.55
P244,022.76 representing sales and ad valorem taxes for the first
semester of 1968 inclusive of surcharges, plus interest at the rate
of 14% per centum from January 1, 1973 up to the date of full Deficiency tax due P 174,962.92
payment thereof pursuant to Section 183 (now 193) of the
National Internal Revenue Code. Add: 25% surcharge 43,740.73

WHEREFORE, the decision appealed from is hereby affirmed at
petitioner's costs. Total deficiency tax and surcharge P 218,703.65

SO ORDERED. 2
Add: 1 1/2% ad valorem on P20,239.29
 25% surcharge thereon 5,059.82 25,299.11
contractors" or "other independent contractors" and, as such, it was a holder of a
TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76
Consequently, demand for the payment of the said amount within ten days from
receipt of the letter was made by respondent on petitioner, otherwise the same
would be collected thru the summary remedies provided for by law. Instead of
paying, petitioner appealed to respondent court.
As earlier stated, a judgment adverse to petitioner was handed down by
respondent court, whereupon he came to this Court on a petition for review. In its
resolution dated September 7, 1981, the Court, through its First Division, denied
the petition for review for lack of merit. 4 Petitioner filed a motion for
reconsideration which was likewise denied in the resolution of October 19, 1981 for
lack of merit, the denial being expressly declared to be final. 5 With leave of court,
petitioner filed its second motion for reconsideration which was granted by the
Court in its resolution dated November 23, 1981. 6
The sole issue in this case is whether petitioner is a contractor subject to the 3%
contractor's tax under Section 191 of the 1968 National Internal Revenue Code or
a manufacturer subject to the 7% sales tax under Section 186 of the same Code.
Petitioner disclaims liability on the ground that it is a contractor within the
meaning of Section 191 of the 1968 Tax Code, the pertinent portion of which
reads:
Sec. 191. Percentage tax on road, building, irrigation, artesian
well, waterworks, and other construction work contractors,
proprietors or operators of dockyards, and others. Road,
building, irrigation, artesian well, waterworks, and other
construction work contractors; . . . and other independent
contractors, . . . shall pay a. tax equivalent to three per centum of
their gross receipts.
xxx xxx xxx
Petitioner contends that its business falls under "other construction work
license under Republic Act No. 4566, otherwise known as the "Contractors
Licensing Law" and was classified thereunder as a "general engineering contractor"
and "specialty asphalt and concrete contractor. 7 It advances the theory that it
produced asphalt and concrete mix only upon previous orders, which may be
proved by its system of requiring the filling of job orders where the customers
specify the construction requirements, and that without such order, it would not do
so considering the highly perishable nature of the asphalt and concrete mix. 8
It emphasizes that the mixing of asphalt and cement, if they were to be sold to the
public, is not a simple matter of putting things together in a rotating bowl but
involves a careful selection of components, proper measuring and weighing of
ingredients, calibration of the plant to arrive at the right mixing temperature, and
testing of the strength of the material, altogether using its own means and
methods without submitting itself to control by the customers. 9
Thus, it adopts the view that if the article subject of the sale is one which is not
ready for delivery, as it is yet to be manufactured according to the order, the seller
thereof is a contractor. However, if the article subject of the sale is one which is
ready for delivery when the order therefor is placed, the seller is a
manufacturer. 10 Complementary to this, it postulates that as a contractor dealing
exclusively in the construction of roads, buildings and other building or
construction works, its business consists of rendering service by way of furnishing
its customers with pre-mixed concrete or asphalt, in effect merely doing for the
customers what the latter used to do themselves, that is, to buy the ingredients
and then mix the concrete or asphalt. 11 It concludes that in doing so, it does not
become a manufacturer.
We have had the occasion to construe Section 191, now Section 205, of the Tax
Code in Commissioner of Internal Revenue vs. The Court of Tax Appeals, et
al. 12 where we reiterated the test as to when one may be considered a contractor
within its context, thus;
The word "contractor" has come to be used with special reference
to a person who, in the pursuit of the independent business,
undertakes to do a specific job or piece of work for other persons,
using his own means and methods without submitting himself to
 control as to the petty details. (Aranas, Annotations and
Jurisprudence on the National Internal Revenue Code, p. 318, par.
191(2), 1970 Ed.) The true test of a contractor as was held in the
cases of Luzon Stevedoring Co. vs. Trinidad, 43 Phil. 803, 807-
808, and La Carlota Sugar Central vs. Trinidad, 43 Phil. 816, 819,
would seem to be that he renders service in the course of an
independent occupation, representing the will of his employer only
as to the result of his work, and not as to the means by which it is
accomplished. (Emphasis supplied)
It is quite evident that the percentage tax imposed in Section 191 is generally a
tax on the sale of services or labor. In its factual findings, respondent court found
that petitioner was formed and organized primarily as a manufacturer; that it has
an aggregate plant at Montalban, Rizal, which processes rock aggregates mined by
it from private lands; it operates a concrete batching plant at Longos, Quezon City
where the specified aggregates from its plant at Montalban are mixed with sand
and cement, after which water is added and the concrete mixture is sold and
delivered to customers; and at its plant site at Longos, Quezon City, petitioner has
also an asphalt mixing machinery where bituminous asphalt mix is
manufactured. 13
We see no reason to disturb the findings of respondent court. Petitioner is a
manufacturer as defined by Section 194(x), now Section 187(x), of the Tax Code.
Sec. 1 94. Words and phrases defined. In applying the
provisions of this Title words and phrases shall be taken in the
sense and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or
chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a special
use or uses to which it could not have been put in its original
condition, or who by any such process alters the quality of any
such raw material or manufactured or partially manufactured
product so as to reduce it to marketable shape or prepare it for
any of the uses of industry, or who by any such process combines
any such raw material or manufactured or partially manufactured
products with other materials or products of the same or different
kinds and in such manner that the finished product of such process
or manufacture can be put to a special use or uses to which such
raw material or manufactured or partially manufactured products,
in their original condition could not have been put, and who in
addition alters such raw material or manufactured or partially
manufactured products, or combines the same to produce such
finished products for the purpose of their sale or distribution to
others and not for his own use or consumption.
As aptly pointed out by the Solicitor General, petitioner's raw materials are
processed under a prescribed formula and thereby changed by means of
machinery into a finished product, altering their quality, transforming them into
marketable state or preparing them for any of the specific uses of industry. Thus,
the raw materials become a distinct class of merchandise or "finished products for
the purpose of their sales or distribution to others and not for his own use or
consumption." Evidently, without the above process, the raw materials or
aggregates could not, in their original form, perform the uses of the finished
product. 14
In a case involving the making of ready-mixed concrete, it was held that concrete
is a product resulting from a combination of sand or gravel or broken bits of
limestones with water and cement; a combination which requires the use of skill
and most generally of machinery. Concrete in forms designed for use and supplied
to others for buildings, bridges and other structures is a distinct article of
commerce and the making of them would be manufacturing by the corporation
doing so. 15
Selling or distribution is an essential ingredient of manufacturing. The sale of a
manufactured product is properly incident to manufacture. The power to sell is an
indispensable adjunct to a manufacturing business. 16 Petitioner, as a
manufacturer, not only manufactures the finished articles but also sells or
distributes them to others. This is inferable from the testimonial evidence of
petitioner's witness that, in the marketing of its products, the company has
marketing personnel who visit the client, whether he is a regular or a prospective
customer, and that it is the customer who specifies the requirement according to
his needs by filling up a purchase order, after which a job order is issued. This is
followed by the delivery of the finished product to the job site. 17
Petitioner relies heavily on the case of The Commissioner of Internal Revenue
vs. Engineering Equipment and Supply Co., et al. 18 and on the basis thereof posits
that it has passed the test of a contractor under Article 1467 of the Civil Code
which provides:
Art. 1467. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale but if the
goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is a contract
for a piece of work.
It is readily apparent that, in declaring private respondent in the
aforesaid Engineering Equipment case as a contractor, the Court relied on findings
of fact distinguishable from those in the case at bar.
. . . We find that Engineering did not manufacture air conditioning
units for sale to the general public, but imported some items (as
refrigeration coils, . . .) which were used in executing contracts
entered into by it. Engineering, therefore, undertook negotiations
and execution of individual contracts for the design, supply and
installation of air conditioning units of the central type . . ., taking
into consideration in the process such factors as the area of the
space to be air conditioned; the number of persons occupying or
would be occupying the premises; the purpose for which the
various air conditioning areas are to be used; and the sources of
heat gain or cooling load on the plant such as the sun load,
lighting, and other electrical appliances which are or may be in the
plan. . . . Engineering also testified during the hearing in the Court
of Tax Appeals that relative to the installation of air conditioning
system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had
to be engineered separately.
As found by the lower court, which finding We adopt
Engineering, in a nutshell, fabricates, assembles, supplies and
installs in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air
conditioning units and spare parts or accessories thereof used by
petitioner are not the window type of air conditioners which are
manufactured, assembled and produced locally for sale to the
general market; and the imported air conditioning units and spare
parts or accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their
needs and requirements.
The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.
It is still good law that a contract to make is a contract of sale if the article is
already substantially in existence at the time of the order and merely requires
some alteration, modification or adaptation to the buyer's wishes or purposes. A
contract for the sale of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on
hand at the time or not is a contract for the sale of goods. 19
Petitioner insists that it would produce asphalt or concrete mix only upon previous
job orders otherwise it would not do so. It does not and will not carry in stock
cement and asphalt mix. 20 But the reason is obvious. What practically prevents
the petitioner from mass production and storage is the nature of its products, that
is, they easily harden due to temperature change and water and cement
reaction. 21 Stated differently by respondent court, "it is self-evident that it is due
to the highly perishable nature of asphalt and concrete mix, as petitioner itself
argues, that makes impossible for them to be carried in stock because they cool
and harden with time, and once hardened, they become useless. 22
Had it not been for this fact, petitioner could easily mass produce the ready-mixed
concrete or asphalt desired and needed by its various customers and for which it is
mechanically equipped to do. It is clear, however, that petitioner does nothing
more than sell the articles that it habitually manufactures. It stocks raw materials,
ready at any time, for the manufacture of asphalt and/or concrete mix. 23 Its
marketing system would readily disclose that its products are available for sale to
anyone needing them. Whosoever would need its products, whether builder,
contractor, homeowner or payer with sufficient money, may order aggregates,
concrete mix or bituminous asphalt mix of the kind manufactured by
petitioner.24 The habituality of the production of goods for the general public
characterizes the business of petitioner.

We are likewise persuaded by the submissions of the Solicitor General that the
ruling in Celestino Co & Company vs. Collector of Internal Revenue 25 is applicable
to this case in that unless an activity is covered by Section 191 of the Tax Code,
one who manufactures articles, although upon a previous order and subject to the
specifications of the buyer, is nonetheless a manufacturer.

We also reject petitioner's theory that, with the amendment of Section 191 of the
Tax Code, it can be considered as a "specialty contractor." As observed by
respondent, a specialty contractor is one whose operations pertain to construction
work requiring special skill and involves the use of specialized building trades or
crafts. The manufacture of concrete and cement mix do not involve the foregoing
requirements as to put it within such special category.

ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the appealed

decision of respondent Court of Tax Appeals is AFFIRMED.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

G.R. No. L-61623 December 26, 1984
PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant,
vs.
COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R.
MENDOZA, respondents-appellees.
Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner
PHHC.
Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.
AQUINO, J.:
The question in this case is whether the People's Homesite & Housing Corporation
bound itself to sell to the Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised
consolidation subdivision plan with an area of 2,6,08.7 (2,503.7) square
meters located at Diliman, Quezon City.
The PHHC board of directors on February 18, 1960 passed Resolution No. 513
wherein it stated "that subject to the approval of the Quezon City Council of the
above-mentioned Consolidation Subdivision Plan, Lot 4. containing 4,182.2 square
meters be, as it is hereby awarded to Spouses Rizalino Mendoza and Adelaida
Mendoza, at a price of twenty-one pesos (P21.00) per square meter" and "that
this award shall be subject to the approval of the OEC (PHHC) Valuation
Committee and higher authorities".
The city council disapproved the proposed consolidation subdivision plan on August
20, 1961 (Exh. 2). The said spouses were advised by registered mail of the
disapproval of the plan (Exh. 2-PHHC). Another subdivision plan was prepared and
submitted to the city council for approval. The revised plan, which included Lot 4,
with a reduced area of 2,608.7, was approved by the city council on February 25,
1964 (Exh. H).
On April 26, 1965 the PHHC board of directors passed a resolution recalling all
awards of lots to persons who failed to pay the deposit or down payment for the
lots awarded to them (Exh. 5). The Mendozas never paid the price of the lot nor
made the 20% initial deposit.
On October 18, 1965 the PHHC board of directors passed Resolution No. 218,
withdrawing the tentative award of Lot 4 to the Mendoza -spouses under
Resolution No. 513 and re-awarding said lot jointly and in equal shares to Miguela
Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose
Fernandez, subject to existing PHHC rules and regulations. The prices would be the
same as those of the adjoining lots. The awardees were required to deposit an
amount equivalent to 20% of the total selling price (Exh. F).
The five awardees made the initial deposit. The corresponding deeds of sale were
executed in their favor. The subdivision of Lot 4 into five lots was approved by the
city council and the Bureau of Lands.
On March 16, 1966 the Mendoza spouses asked for reconsideration of the
withdrawal of the previous award to them of Lot 4 and for the cancellation of the
re-award of said lot to Sto. Domingo and four others. Before the request could be
acted upon, the spouses filed the instant action for specific performance and
damages.
The trial court sustained the withdrawal of the award. The Mendozas appealed.
The Appellate Court reversed that decision and declared void the re-award of Lot 4
and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an
area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as
attorney's fees and litigation expenses. The PHHC appealed to this Court.
The issue is whether there was a perfected sale of Lot 4, with the reduced area, to
the Mendozas which they can enforce against the PHHC by an action for specific
performance.
We hold that there was no perfected sale of Lot 4. It was conditionally or
contingently awarded to the Mendozas subject to the approval by the city council
of the proposed consolidation subdivision plan and the approval of the award by SO ORDERED.
the valuation committee and higher authorities.
Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ.,
The city council did not approve the subdivision plan. The Mendozas were advised concur.
in 1961 of the disapproval. In 1964, when the plan with the area of Lot 4 reduced
to 2,608.7 square meters was approved, the Mendozas should have manifested in
writing their acceptance of the award for the purchase of Lot 4 just to show that
they were still interested in its purchase although the area was reduced and to
obviate ally doubt on the matter. They did not do so. The PHHC board of directors
acted within its rights in withdrawing the tentative award.

"The contract of sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the law
governing the form of contracts." (Art. 1475, Civil Code).

"Son, sin embargo, excepcion a esta regla los casos en que por virtud de la
voluntad de las partes o de la ley, se celebra la venta bajo una condicion
suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de la
condicion" (4 Castan Tobenas, Derecho Civil Espaol 8th ed. p. 81).

"In conditional obligations, the acquisition of rights, as well as the extinguishment

or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition. (Art. 1181, Civil Code). "Se llama suspensive la
condicion de la que depende la perfeccion, o sea el principio del contrato". (9
Giorgi, Teoria de las Obligaciones, p. 57).

Under the facts of this case, we cannot say there was a meeting of minds on the
purchase of Lot 4 with an area of 2,608.7 square meters at P21 a square meter.

The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the
awardee in that case applied for the purchase of the lot, paid the 10% deposit and
a conditional contract to sell was executed in his favor. The PHHC could not re-
award that lot to another person.

WHEREFORE, the decision of the Appellate Court is reversed and set aside and the
judgment of the trial court is affirmed. No costs.
G.R. No. L-116650 May 23, 1995 the Court of Appeals took the affirmative view. The petitioner disagrees. Hence,
this petition for review on certiorari.
TOYOTA SHAW, INC., petitioner,
vs. The antecedents as disclosed in the decisions of both the trial court and the Court
COURT OF APPEALS and LUNA L. SOSA, respondents. of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc.
(hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as
DAVIDE, JR., J.: follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite
Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an
available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that
At the heart of the present controversy is the document marked Exhibit "A" 1 for
there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went
the private respondent, which was signed by a sales representative of Toyota
to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met
Shaw, Inc. named Popong Bernardo. The document reads as follows:
Popong Bernardo, a sales representative of Toyota.

June 1989
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June
1989 because he, his family, and a balikbayan guest would use it on 18 June 1989
AGREEMENTS BETWEEN MR. SOSA to go to Marinduque, his home province, where he would celebrate his birthday on
& POPONG BERNARDO OF TOYOTA the 19th of June. He added that if he does not arrive in his hometown with the
SHAW, INC. new car, he would become a "laughing stock." Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed
1. all necessary documents will be submitted to TOYOTA SHAW, the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota
INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa Shaw, Inc." It was also agreed upon by the parties that the balance of the
from the Province (Marinduque) where the unit will be used on the purchase price would be paid by credit financing through B.A. Finance, and for this
19th of June. Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on
June 15, 1989. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the
downpayment of P100,000.00. They met Bernardo who then accomplished a
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] printed Vehicle Sales Proposal (VSP) No. 928,2 on which Gilbert signed under the
and released by TOYOTA SHAW, INC. on the 17th of June at 10 subheading CONFORME. This document shows that the customer's name is "MR.
a.m. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II;
that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr
minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the
(Sgd.) POPONG BERNARDO. initial cash outlay of P100,000.00 broken down as follows:

Was this document, executed and signed by the petitioner's sales representative, a
perfected contract of sale, binding upon the petitioner, breach of which would
entitle the private respondent to damages and attorney's fees? The trial court and a) downpayment P 53,148.00
 Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the
VSP.

On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that
the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed
b) insurance P 13,970.00 upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met
Bernardo at the latter's office. According to Sosa, Bernardo informed them that the
Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo
told them that the car could not be delivered because "nasulot ang unit ng ibang
c) BLT registration fee P 1,067.00 malakas."

Toyota contends, however, that the Lite Ace was not delivered to Sosa because of
the disapproval by B.A. Finance of the credit financing application of Sosa. It
CHMO fee P 2,715.00 further alleged that a particular unit had already been reserved and earmarked for
Sosa but could not be released due to the uncertainty of payment of the balance of
the purchase price. Toyota then gave Sosa the option to purchase the unit by
paying the full purchase price in cash but Sosa refused.
service fee P 500.00
After it became clear that the Lite Ace would not be delivered to him, Sosa asked
that his downpayment be refunded. Toyota did so on the very same day by issuing
a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which
accessories P 29,000.00
was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation,
"without prejudice to our future claims for damages."

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided
for "Delivery Terms" were not filled-up. It also contains the following pertinent
provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price
prevailing and in effect at time of selling will apply. . . .
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989
and signed by him, he demanded the refund, within five days from receipt, of the
downpayment of P100,000.00 plus interest from the time he paid it and the
payment of damages with a warning that in case of Toyota's failure to do so he
would be constrained to take legal action. 6 The second, dated 4 November 1989
and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos
representing interest and damages, again, with a warning that legal action would
be taken if payment was not made within three days. 7 Toyota's counsel answered
through a letter dated 27 November 1989 8 refusing to accede to the demands of
Sosa. But even before this answer was made and received by Sosa, the latter filed
on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of
Marinduque a complaint against Toyota for damages under Articles 19 and 21 of
the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that:
 9. As a result of defendant's failure and/or refusal to deliver the
vehicle to plaintiff, plaintiff suffered embarrassment, humiliation,
ridicule, mental anguish and sleepless nights because: (i) he and
his family were constrained to take the public transportation from
Manila to Lucena City on their way to Marinduque; (ii) his
balikbayan-guest canceled his scheduled first visit to Marinduque
in order to avoid the inconvenience of taking public transportation;
and (iii) his relatives, friends, neighbors and other provincemates,
continuously irked him about "his Brand-New Toyota Lite Ace
that never was." Under the circumstances, defendant should be
made liable to the plaintiff for moral damages in the amount of
One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered into
between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in
its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special
and affirmative defenses, it alleged that: the VSP did not state date of delivery;
Sosa had not completed the documents required by the financing company, and as
a matter of policy, the vehicle could not and would not be released prior to full
compliance with financing requirements, submission of all documents, and
execution of the sales agreement/invoice; the P100,000.00 was returned to and
received by Sosa; the venue was improperly laid; and Sosa did not have a
sufficient cause of action against it. It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the trial court
rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit
"A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a
valid perfected contract of sale between Sosa and Toyota which bound Toyota to
deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad
faith in selling to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through Exhibit
"A," the trial court held that the extent of Bernardo's authority "was not made
known to plaintiff," for as testified to by Quirante, "they do not volunteer any
information as to the company's sales policy and guidelines because they are
internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its
consummation when the downpayment was made by the plaintiff, the defendants
had made known to the plaintiff the impression that Popong Bernardo is an
authorized sales executive as it permitted the latter to do acts within the scope of
an apparent authority holding him out to the public as possessing power to do
these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc.
and hence bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing in the
community and suffered besmirched reputation, wounded feelings and sleepless
nights for which he ought to be compensated." 16 Accordingly, it disposed as
follows:
WHEREFORE, viewed from the above findings, judgment is hereby
rendered in favor of the plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff the
sum of P75,000.00 for moral damages;
2. ordering the defendant to pay the plaintiff the
sum of P10,000.00 for exemplary damages;
3. ordering the defendant to pay the sum of
P30,000.00 attorney's fees plus P2,000.00 lawyer's
transportation fare per trip in attending to the
hearing of this case;
4. ordering the defendant to pay the plaintiff the
sum of P2,000.00 transportation fare per trip of
the plaintiff in attending the hearing of this case;
and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of
Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision
promulgated on 29 July 1994,17 the Court of Appeals affirmed in toto the appealed
decision.
Toyota now comes before this Court via this petition and raises the core issue
stated at the beginning of the ponenciaand also the following related issues: (a)
whether or not the standard VSP was the true and documented understanding of
the parties which would have led to the ultimate contract of sale, (b) whether or
not Sosa has any legal and demandable right to the delivery of the vehicle despite
the non-payment of the consideration and the non-approval of his credit
application by B.A. Finance, (c) whether or not Toyota acted in good faith when it
did not release the vehicle to Sosa, and (d) whether or not Toyota may be held
liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion that
Exhibit "A" is a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of Appeals
appear to see. It is not a contract of sale. No obligation on the part of Toyota to
transfer ownership of a determinate thing to Sosa and no correlative obligation on
the part of the latter to pay therefor a price certain appears therein. The provision
on the downpayment of P100,000.00 made no specific reference to a sale of a
vehicle. If it was intended for a contract of sale, it could only refer to a sale on
installment basis, as the VSP executed the following day confirmed. But nothing
was mentioned about the full purchase price and the manner the installments were
to be paid.
This Court had already ruled that a definite agreement on the manner of payment
of the price is an essential element in the formation of a binding and enforceable
contract of sale. 18 This is so because the agreement as to the manner of payment
goes into the price such that a disagreement on the manner of payment is
tantamount to a failure to agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota
and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well
aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG
BERNARDO OF TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the latter
did not misrepresent that he had the authority to sell any Toyota vehicle. He knew
that Bernardo was only a sales representative of Toyota and hence a mere agent
of the latter. It was incumbent upon Sosa to act with ordinary prudence and
reasonable diligence to know the extent of Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's vehicles. A person dealing with an
agent is put upon inquiry and must discover upon his peril the authority of the
agent.21
At the most, Exhibit "A" may be considered as part of the initial phase of the
generation or negotiation stage of a contract of sale. There are three stages in the
contract of sale, namely:
 (a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of
the parties;
(b) perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance
of the terms agreed upon in the contract. 22
The second phase of the generation or negotiation stage in this case was the
execution of the VSP. It must be emphasized that thereunder, the downpayment
of the purchase price was P53,148.00 while the balance to be paid on installment
should be financed by B.A. Finance Corporation. It is, of course, to be assumed
that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have
mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by
P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those
regulated by the Central Bank of the Philippines, the Insurance Commission and
the Cooperatives Administration Office, which are primarily organized for the
purpose of extending credit facilities to consumers and to industrial, commercial,
or agricultural enterprises, either by discounting or factoring commercial papers or
accounts receivables, or by buying and selling contracts, leases, chattel
mortgages, or other evidence of indebtedness, or by leasing of motor vehicles,
heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a financing
company, three parties are thus involved: the buyer who executes a note or notes
for the unpaid balance of the price of the thing purchased on installment, the seller
who assigns the notes or discounts them with a financing company, and the
financing company which is subrogated in the place of the seller, as the creditor of
the installment buyer. 24 Since B.A. Finance did not approve Sosa's application,
there was then no meeting of minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's
application for which reason it suggested to Sosa that he pay the full purchase
price. When the latter refused, Toyota cancelled the VSP and returned to him his
P100,000.00. Sosa's version that the VSP was cancelled because, according to
Bernardo, the vehicle was delivered to another who was "mas malakas" does not
inspire belief and was obviously a delayed afterthought. It is claimed that
Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the
Sosas had already been waiting for an hour for the delivery of the vehicle in the
afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa
solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning,
defendant's sales representative, Mr. Popong Bernardo, called
plaintiff's house and informed the plaintiff's son that the vehicle
will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at
2:00 p.m. of that day instead. Plaintiff and his son went to
defendant's office on June 17 1989 at 2:00 p.m. in order to pick-
up the vehicle but the defendant for reasons known only to its
representatives, refused and/or failed to release the vehicle to the
plaintiff. Plaintiff demanded for an explanation, but nothing was
given; . . . (Emphasis supplied). 25
The VSP was a mere proposal which was aborted in lieu of subsequent events. It
follows that the VSP created no demandable right in favor of Sosa for the delivery
of the vehicle to him, and its non-delivery did not cause any legally indemnifiable
injury.
The award then of moral and exemplary damages and attorney's fees and costs of
suit is without legal basis. Besides, the only ground upon which Sosa claimed
moral damages is that since it was known to his friends, townmates, and relatives
that he was buying a Toyota Lite Ace which they expected to see on his birthday,
he suffered humiliation, shame, and sleepless nights when the van was not
delivered. The van became the subject matter of talks during his celebration that
he may not have paid for it, and this created an impression against his business
standing and reputation. At the bottom of this claim is nothing but misplaced pride
and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing
that he might not be able to pay the full purchase price. It was he who brought
embarrassment upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for
temperate, liquidated, or compensatory damages, he is likewise not entitled to
exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective
damages are imposed by way of example or correction for the public good, in
addition to moral, temperate, liquidated, or compensatory damages.

Also, it is settled that for attorney's fees to be granted, the court must explicitly
state in the body of the decision, and not only in the dispositive portion thereof,
the legal reason for the award of attorney's fees. 26 No such explicit determination
thereon was made in the body of the decision of the trial court. No reason thus
exists for such an award.

WHEREFORE, the instant petition is GRANTED. The challenged decision of the

Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the
Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET
ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim
therein is likewise DISMISSED. No pronouncement as to costs.
G.R. No. L-43059 October 11, 1979
SAMPAGUITA PICTURES, INC., plaintiff-appellant,
vs.
JALWINDOR MANUFACTURERS, INC., defendant-appellee.
DE CASTRO, J:
This case was certified to this Court by the Court of Appeals pursuant to the
provisions of Section 17, paragraph (6) in relation to Section 31 of the Judiciary
Act of 1948.
Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as
Sampaguita) is the owner of the Sampaguita Pictures Building located at the
corner of General Araneta and General Roxas Streets, Cubao, Quezon City. The
roofdeck of the building and all existing improvements thereon were leased by
Sampaguita to Capitol "300" Inc. (Capitol for short), and it was agreed, among
other things, that the premises shall be used by said club for social purposes
exclusively for its members and guests; that all permanent improvements made
by the lessee on the leased premises shall belong to the lessor without any
obligation on the part of the lessor to reimburse the lessee for the sum spent for
said improvements; that the improvements made by lessee have been considered
as part of the consideration of the monthly rental and said improvements belong
to the lessor; that any remodelling, alterations and/or addition to the premises
shall be at the expense of the lessee and such improvements belong to the lessor,
without any obligation to reimburse the lessee of any sum spent for said
improvements. (pp. 29-32, Record on Appeal).
Capitol "300" purchased on credit from defendant-appellee Jalwindor
Manufacturers, Inc. (hereinafter referred to as Jalwindor) glass and wooden
jalousies which were delivered and installed in the leased premises by Jalwindor
replacing the existing windows. On June 1, 1964, Jalwindor filed with the Court of
First Instance of Rizal, Quezon City, an action for collection of a sum of money
with a petition for preliminary attachment against Capitol for its failure to pay its
purchases. The parties submitted to the trial court a Compromise Agreement
wherein Capitol acknowledged its indebtedness to Jalwindor in the amount of
P9,531.09, exclusive of attorney's fees and interest, payable in monthly
installments of at least P300.00 a month beginning December 15, 1964; and
pending liquidation of the said obligation, all the materials purchased by Capitol
will be considered as security for such undertaking. (p. 13, Record on Appeal).
In the meantime, Capitol "300" was not able to pay rentals to Sampaguita from
March 1, 1964 to April 30, 1965, water, electric and telephone services.
Sampaguita filed a complaint for ejectment and for collection of a sum of money
against Capitol and on June 8, 1965, the City Court of Quezon City rendered
judgment ordering Capitol to vacate the premises and to pay Sampaguita.
On the other hand, Capitol likewise failed to comply with the terms of the
Compromise Agreement, and on July 31, 1965, the Sheriff of Quezon City made
levy on the glass and wooden jalousies in question. Sampaguita filed a third party
claim alleging that it is the owner of said materials and not Capitol, Jalwindor
however, filed an indemnity bond in favor of the Sheriff and the items were sold et
public auction on August 30, 1965 with Jalwindor as the highest bidder for
P6,000.00.
Sampaguita filed with the Court of First Instance of Rizal, Branch IV of Quezon
City, an action to nullify the Sheriff's Sale and for the issuance of a writ of
preliminary injunction against Jalwindor from detaching the glass and wooden
jalousies. Jalwindor was ordered to maintain the status quo pending final
determination of the case. No actual hearing was held and the parties submitted
the following stipulation of facts for the consideration of the court.
1. That plaintiff and defendant are both domestic corporations duly
organized and existing by and under the laws of the Philippines:
2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of
the Sampaguita building and all the existing improvements thereon
for a monthly, rental of P650.00; that the parties to the lease
contract agreed that all permanent improvements made by the
lessee on the leased premises shall belong to the lessor without
any obligation on the part of the lessor to reimburse the lessee for
the sum spent for said improvements; that it was agreed upon by
the parties that the improvements made by the lessee have been
considered as part of the consideration of the monthly rental;
3. That CAPITOL "300", Inc. made alterations on the leased
premises; that it removed the then existing windows and replaced
'them with the following items bought on credit from the
JALWINDOR MANUFACTURERS INC.. valued at P9,531.09, to wit:
J-21(lever-type) Solex Bluepane
Glass Jaluosies
11 Sets 15'-1 3/4" x 47-7/8" (5 units)
4 Sets 13'-5 3/4" x 47-7/8" (5 units)
3 Sets 10'-9 3/4" x 47-7/7" (4 units)
2 Sets 18'-1 3/3" x 56-3/8" (6 units)
1 Set 9'-1 3/4" x 65-3/8" (3 units)
115 Pcs. Roto Operators for J-21
MODEL J-21 (Roto-type) Glass
and Wood Jalousies
8 Sets 32-1/2" x 60" Solex Bluepane
19 Sets 31-1/4" x 48" Solex Bluepane
18 Sets 34" x 48" Wood
4. That after the CAPITOL "300", Inc. failed to pay the price of the
items mentioned in the preceding paragraph, JALWINDOR
MANUFACTURERS, Inc, filed a case for collection of a sum of
money against CAPITOL "300", Inc. with the Court of First Instance
of Rizal (Branch IV Quezon City), Civil Case No. Q-8040; that by
virtue of a Compromise Agreement, CAPITOL "300", Inc.
acknowledged indebtedness in favor of JALWINDOR in the amount
of P9,531,09, with a stipulation in the said Compromise
Agreement, that the items forming part of the improvements will
form as security for such an undertaking;
5. That due to non-compliance by CAPITOL "300", Inc.,
JALWINDOR executed judgment that the Sheriff of Quezon City
made levy on the items above-stated in paragraph 3 hereof and
sold them at a public auction to JALWINDOR MANUFACTURERS,
INC. as the highest bidder, on August 30, 1965, for the total
amount of P 6,000.00:
6. That after CAPITOL "300", Inc. failed to pay the rentals in
arrears from March 1, 1964 to April 30, 1965, water, electric and
telephone services amounting to P 10,772.90, the plaintiff
SAMPAGUITA PICTURES, INC. filed with the City Court of Quezon
City, Civil Case No. 11-13161 for ejectment and collection of a sum
of money against the CAPITOL "300", Inc,; that the City Court
rendered judgment in favor of the Sampaguita Pictures, Inc., on
June 8, 1965, ordering the CAPITOL "300", Inc. to vacate the
premises located at the Sampaguita Building and to pay the
Sampaguita Pictures, Inc.;
7. That after the Sheriff of Quezon City made levy on the items
above-stated in paragraph 3 hereof situated on the roofdeck of the
Sampaguita Building, plaintiff filed a Third Party Claim stated in its
affidavit on the ground of its right and title to the possession of the
items and that CAPITOL "300", Inc. has no right or title
whatsoever to the possession over said items; that defendant filed
a bond to indemnify the Sheriff against the claim, and the Sheriff
sold the items to the defendant; that the JALWINDOR
 MANUFACTURERS, Inc., being the highest bidder and the execution
creditor, considered itself paid to the amount of P6,000.00;
8. That the parties herein agree that the matter of attorney's fees
be left to the sound discretion of the Court, which shall not be less
than P500.00. (Record on Appeal, pp. 11-14).
On October 20, 1967, based on said Stipulation of Facts, the lower court dismissed
the complaint and ordered Sampaguita to pay Jalwindor the amount of P500.00 as
attorney's fees. Sampaguita filed a motion for reconsideration which was likewise
denied, hence, the instant appeal.
Petitioner-appellant raised the following assignment of errors:
I
The lower court erred in holding that Capitol "300" Inc. could not
legally transfer or assign the glass and wooden jalousies in
question to the plaintiff-appellant.
II
The lower court erred in not holding that plaintiff-appellant was the
rightful owner of the glass and wooden jalousies when they were
sold by the Sheriff at the public auction,
III
The lower court erred in not declaring as null and void the levy on
execution and the Sheriff's sale at public auction of the glass and
wooden jalousies.
IV
The lower court erred in holding that defendant-appellee became
the rightful owner of the glass and wooden jalousies.
When the glass and wooden jalousies in question were delivered and installed in
the leased premises, Capitol became the owner thereof. Ownership is not
transferred by perfection of the contract but by delivery, either actual or
constructive. This is true even if the purchase has been made on credit, as in the
case at bar. Payment of the purchase price is not essential to the transfer of
ownership as long as the property sold has been delivered. Ownership is acquired
from the moment the thing sold was delivered to vendee, as when it is placed in
his control and possession. (Arts. 1477, 1496 and 1497, Civil Code of the Phil.)
Capitol entered into a lease Contract with Sampaguita in 1964, and the latter
became the owner of the items in question by virtue of the agreement in said
contract "that all permanent improvements made by lessee shall belong to the
lessor and that said improvements have been considered as part of the monthly
rentals." When levy or said items was made on July 31, 1965, Capitol, the
judgment debtor, was no longer the owner thereof.
The action taken by Sampaguita to protect its interest is sanctioned by Section 17,
Rule 39 of the Rules of Court, which reads:
Section 17, Proceedings where property claimed by third person.
... The officer is not liable for damages for the taking or keeping of
the property to any third-party claimant unless a claim is made by
the latter and unless an action for damages is brought by him
against the officer within one hundred twenty (120) days from the
date of the filing of the bond. But nothing herein contained shall
prevent claimant from vindicating his claim to the property by any
action.
It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al., 63 SCRA
358, wherein the Court declared, "that the rights of third party claimants over
certain properties levied upon by the sheriff to satisfy the judgment, may not be
taken up in the case where such claims are presented but in a separate and
independent action instituted by claimants. ... and should a third-party appear to
claim is denied, the remedy contemplated by the rules in the filing by said party of
a reinvicatiry action against the execution creditor or the purchaser of the property
after the sale is completed or that a complaint for damages to be charged against
the bond filed by the creditor in favor of the sheriff. ... Thus, when a property
levied upon by the sheriff pursuant to a writ of execution is claimed by a third
person in a sworn statement of ownership thereof, as prescribed by the rules, an
entirely different matter calling for a new adjudication arises."

The items in question were illegally levied upon since they do not belong to the
judgemnt debtor. The power of the Court in execution of judgment extends only to
properties unquestionably belonging to the judgment debtor. The fact that Capitol
failed to pay Jalwindor the purchase price of the items levied upon did not prevent
the transfer of ownership to Capitol. The complaint of Sampaguita to nullify the
Sheriff's sale well-founded, and should prosper. Execution sales affect the rights of
judgment debtor only, and the purchaser in the auction sale acquires only the
right as the debtor has at the time of sale. Since the items already belong to
Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale
are, accordingly, null and void. It is well-settled in this jurisdiction that the sheriff
is not authorized to attach property not belonging to the judgment debtor.
(Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald Publishing vs.
Ramos, 88 Phil. 94, 100).

WHEREFORE, the decision appealed from is hereby reversed, and plaintiff-

appellant Sampaguita is declared the lawful owner of the disputed glass and
wooden jalousies. Defendant-appellee Jalwindor is permanently enjoined from
detaching said items from the roofdeck of the Sampaguita Pictures Building, and is
also ordered to pay plaintiff-appellant the sum of P1,000.00 for and as attorney's
fees, and costs.

SO ORDERED.